NCERT Solutions for Class 12 Economics II Chapter 5 Government Budget And The Economy – Here are all the NCERT solutions for Class 12 Economics I Chapter 5. This solution contains questions, answers, images, explanations of the complete chapter 5 titled Government Budget And The Economy taught in Class 12. If you are a student of Class 12 who is using NCERT Textbook to study Economics I, then you must come across chapter 5 Government Budget And The Economy. After you have studied lesson, you must be looking for answers of its questions. Here you can get complete NCERT Solutions for Class 12 Economics I Chapter 5 Government Budget And The Economy.
NCERT Solutions Class 12 Economics Chapter 5 Government Budget And The Economy
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Class | 12 |
Subject | Economics |
Book | Introductory Macroeconomics |
Chapter Number | 5 |
Chapter Name |
Government Budget And The Economy |
NCERT Solutions Class 12 Economics chapter 5 Government Budget And The Economy
Class 12, Economics chapter 5, Government Budget And The Economy solutions are given below in PDF format. You can view them online or download PDF file for future use.
Government Budget And The Economy
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Question & Answer
Q.1: Explain why public goods must be provided by the government.
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.
Q.2: ‘The fiscal deficit gives the borrowing requirement of the government’. Elucidate.
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
Q.3: Give the relationship between the revenue deficit and the fiscal deficit.
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.
Q.4: Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfers) is 100 and consumption is given by C = 100 + 0.75Y (a) What is the level of equilibrium income? (b) Calculate the value of the government expenditure multiplier and the tax multiplier. (c) If government expenditure increases by 200, find the change in equilibrium income.
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
Q.5: Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?
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 \(\begin{array}{l}{=Y+\Delta Y} \\ {=900+(-120)} \\ {=780}\end{array}\)
NCERT / CBSE Book for Class 12 Economics
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