Economics Class 12 Revision Notes Macroeconomics Chapter 5 Government Budget and The Economy
A government budget is an 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
Those goods which can not be provided through the market mechanism and hence, must be provided by the government are called public goods.
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 from 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 following heads
(i) Market borrowings
(ii) Other borrowings and loans
(iii) Small savings
(iv) Provident fund and other deposits
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.
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.
All expenditures of government not included in the current Five-Year Plan is termed as non-plan expenditure.
If government expenditures exceed the government receipts, it is called deficit budget.
(i)Revenue Deficit (RD) = Total Revenue Expenditureâ€” 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.