# Free Understanding the Budget 01 Practice Test - 12th Grade - Commerce

From the following data about a government budget, calculate the revenue deficit.

Tax Revenue50Capital Receipts35Non-tax Revenue20Borrowings30Revenue Expenditures80Interest Payments25

A.

55

B.

10

C.

30

D.

80

#### SOLUTION

Solution : B

Revenue Deficit = Revenue Expenditure - (Tax Revenue + Non-tax Revenue)

Revenue Deficit = 80 - (50+20) = 80 - 70 = 10

According to a recent forecast, the government is about to face a high future loan burden and heavy interest payments. This is due to:

A.

Low capital budget

B.

Low revenue expenditure

C.

High revenue deficit

D.

High revenue expenditure

#### SOLUTION

Solution : C

A high revenue deficit implies a high future loan burden and heavy interest payments.

If the government borrows money from the World Bank to meet its future expenditures, it falls in the ___ budget.

#### SOLUTION

Solution :

If the government borrows money from the World Bank, it increases the liability of the government as this money has to be paid back. Therefore it falls in the capital budget.

The major expenditure of the Government is the share allocated to states by the Central Government. State true or false.

A.

True

B.

False

#### SOLUTION

Solution : A

The major expenditure of the Government is the share allocated to states by the Central Government.

Which of the following is/are correctly matched?

1. Borrowings by the governmenta. Capital Receipt2. Recovery of loansb. Revenue Receipt3. Customs dutyc. Capital Expenditure4. Construction of roadsd. Revenue Expenditure

A.

1 - a, 2 - a, 3 - b, 4 - a

B.

1 - a, 2 - a, 3 - b, 4 - c

C.

1 - d, 2 - c, 3 - b, 4 - d

D.

1 - b, 2 - c, 3 - b, 4 - c

#### SOLUTION

Solution : B

Out of the given options, borrowings and recovery of loans impact the balance sheet and are capital receipts. Customs duty is a revenue receipt and construction of roads is a capital expenditure.

Which of the following lead(s) to a reduction in assets?

A.

Indirect taxes

B.

Recovery of loans

C.

Disinvestment

D.

Interest payments

#### SOLUTION

Solution : B and C

Out of the given options, B and C reduce the assets of the government. They are both capital receipts.

Which was a more important component of revenue expenditure?

A.

Plan Expenditure

B.

Non-Plan Expenditure

C.

Infrastructure Expenditure

D.

None of the above

#### SOLUTION

Solution : B

Non-Plan Expenditure was the more important component of revenue expenditure.

Defence expenditure falls under

A.

Plan Expenditure

B.

Non-Plan Expenditure

C.

Infrastructure Expenditure

D.

None of the above

#### SOLUTION

Solution : B

Defence expenditure falls under Non-Plan Expenditure.

VAT is paid directly to the authorities, not by the consumer but indirectly by the supplier of the goods or services. So this falls under

A.

Tax revenue

B.

Non-Tax revenue

C.

Revenue Expenditure

D.

Revenue Receipt

#### SOLUTION

Solution : A and D

VAT is an indirect tax which comes under tax revenues.

Analysing the previous years' reports on the budget, it is seen that the government is inclining towards a massive deficit in the next two years. In order to avoid the deficit, the government should:

A.

Reduce the expenditure

B.

Increase the revenues

C.

Prefer to keep borrowing from bank

D.

Opt for international loans

#### SOLUTION

Solution : A and B

The government should try to avoid incurring debt as much as possible because it is hard to manage a deficit and it is not sustainable. The government should rather try to reduce the deficit and aim for a balanced or surplus budget. Therefore options A and B are right.