Odisha State Board CHSE Odisha Class 12 Economics Solutions Chapter 13 Public Finance Questions and Answers.
CHSE Odisha 12th Class Economics Chapter 13 Question Answer Public Finance
Group – A
Short type Questions with Answers
Answer with in Two/Three sentence.
Question 1.
What is Public finance?
Answer:
Public finance studies the income, expenditure of the government & its rational adjustment with each other for the purpose of economic progress. It also includes the revenue & capital expenditures of the government & sources of revenue to be collected.
Question 2.
Balanced budget is the best budget
Answer:
In case of balanced budget, the government receipt becomes equal to government expenditure. Here, there is no surplus nor any deficit in respect of govt, expenditure or income & so it is treated as the best budget.
Question 3.
Deficit budget is beneficial to the UDCs
Answer:
In deficit budget the govt, expenditure is more than the govt, receipts. There is ample scope for developmental activities. Hence it is beneficial to the UDCs.
Question 4.
What is Surplus budget?
Answer:
Surplus budget is one type of unbalanced budget in which revenue receipts for the budget period are greater than the expenditure to be incurred. Hence, the total revenue earned through various sources of the Government has not been exhausted and some amount of income remains unspent or unutilised.
Question 5.
Write down two demerits of Deficit budget.
Answer:
Deficit budget is prone to inflation. If it is not properly managed, there will be wide gap between demand and supply, Inflation will come up. Deficit budget creates inflation. So, price of the goods to be exported increases. The volume of export comes down. It will reduce the amount of foreign currency in the country.
II. Answer within Five/Six sentence :
(A) write shot notes on :
1. Public Finance:
Answer:
Public finance deals with the income and expenditure of public authorities and with the adjustment of one to another.” Obviously, public finance also deals with the problems of adjustments of income and expenditure of the Government. The methods of expenditure of public bodies and income of public bodies as well as borrowing by public bodies are known as operations of public finance. According to Bastable “Public finance deals with expenditure and income of public authorities of the State and their mutual relation as also with the financial administration and control”. Thus public finance was concerned with the explanation of revenue and expenditure process of the public authorities.
2. Budget:
Answer:
Budget is a financial statement of income and expenditure of public authorities. It is a reflection of not only taxation and public expenditure policy, but also of a plan for future course of action. It is designed to Secure the normative ideas of allocation, distribution, stabilisations and growth. Budget, thus refers to the financial arrangement covering the income and expenditure of the Government especially for a particular year. It is an aimual plan of income and expenditure of the public authorities which reflects the economic activities to be undertaken by the Government for a particular year.
3. Balanced budget:
Answer:
Budget is viewed as a balanced budget if the Government revenues are equal to Government expenditures. In such budget, there exists no gap between the total income and total expenditure of the Government during a particular time-period. This sort of budget is appreciated for underdeveloped countries which suffer from chronic destability due to considerable amount of deficit. Besides, this budget avoids extravagant expenditure and thus ensures effective allocation and mobilisation of the available resources.
4. Deficit Budget:
Answer:
Deficit budget is that budget in which the government expenditure exceeds government revenue. In this case government receipts for the budget period is inadequate to meet the government expenditure. The gap between the government receipt & government expenditure is met through public debt & issue of new currency notes, Deficit budget is expansionary in nature. Deficit budget controls unemployment, deflation etc.
5. Surplus budget:
Answer:
The surplus budget is that in which anticipated revenue of the government is more than the anticipated expenditure. In this budget, revenue receipts during budget period are greater than the cost payments. The outcome of surplus budget is very discouraging in modem world. It has got contractionary effect. Besides, it checks unproductive expenditure & reduces debt burden. This budget is not favourable for developing countries.
(B) Distinguish Between
6. Public finance & Private finance:
- Public finance deals with the income & expenditure of the public authorities i.e. local, state & central government. But the private finance deals with the income & expenditure of the private individual.
- Public finance aims at collective welfare of the society whereas private finance aims at individual welfare.
- In public finance, government adjusts its income to its expenditure whereas in private finance, the individual adjusts its expenditures to its income.
- In public finance, the government can not avoid or postpone its expenditure whereas in private finance, it can be avoided or postponed.
Group – B
Long Type Questions With Answers
Question 1.
What is public finance ? Compare & contrast between Private finance & Public finance.
Answer:
The two terms ‘public’ & ‘finance’ denotes income & income expenditure of the government. Here public implies government which collectively considers the people of the State. Similarly, finance refers to income & expenditure, public finance denotes income & expenditure of the government. According to H. Dalton, public finance is a “subject which is concerned with the income & expenditures of public authorities & with the adjustment of the one with the other”. In simple way, public finance deals with the income of the public authorities (government) i.e. local, state or central. It was a practice among the writers on public finance to compare public with private finance. Such a comparison will enable us to have a clearer picture of the public finance.
(1) It is said that an individual will adjust his expenditure to his income. On the other hand, it is pointed out that the state will adjust its income to expenditure. In the case of the individual, income determines the expenditure. In the case of the state, expenditure determines its income. Ofcourse, this statement has its exception. An individual too tries to increase his income when it is not enough to meet his essential expenditure. On the other hand, the state too curtails its expenditure when it is not possible to raise its income. After all, the sources of income to the state also are not completely elastic.
(2) Both the individual and state attempt to equalise income and expenditure. Both of them try to earn more or at least borrow to meet the additional expenditure but there is one difference. An individual can borrow from another individual or institution, i.e., externally. A state can borrow externally from foreign citizens, institutions or government as well as internally from its own citizens. Further, the government may also inflate, i.e., print more notes to meet its expenditure, This course is entirely out of reach for the individual.
(3) Generally, the state adopts a year as its accounting period and attempts to equalize revenue and expenditure during that period. An individual does not have any such-rigid scheme of balancing income and expenditure in every year. However even with regard to a state. There is no particular sanctity attached to a year. The budget period may will be changed to three or four years.
(4) An individual is supposed to distribute the expenditure among various items so as. to equalize their marginal utilities. In case of the state, this is not considered to be possible since it isnot a person. But even in the case of the state, the statesmen should so distribute the expenditure that marginal utilities to the community on all forms of expenditure must be the same. Ofcourse, neither the individual nor the public authorities will be able to do these calculations very accurately. There can at best, be only an approximately correct distribution following this principle.
(5) The government will be in a much better position to make deliberate changes in its income and expenditure than an individual. An individual has limited resources. The government can similarly change the pattern of expenditure with greater than the individual.
(6) The government spends on certaqin ojects like security, peace and order, national defence etc. These are entirely beyond the scope of private finance.
(7) the individuals can afford to discont future at a higher rate. But the state cann’t do so since it will be in perpetual existence. It has to provide for the future. It has to compensate for the deficiency in the individual’s provision for future.
(8) In private business, ‘special service and special payment’ is the principle. But in the case of the state here is usually no relationship between the service rendered by the state and the payment it demands from individuals.
(9) The individual will have an eye on quick returns and high profits while making investments, the state doesn’t follow this principle. It sometimes undertakes even follow this principle. It sometimes undertakes even singly, unproductive projects which are beneficial to the society in the long run.
(10) The effects of expenditure on the part of the state are different from the effects of expenditures by individuals. Ofcourse the effect of expenditure in creating effective demand for goods is the same in regard to both. However, the variation of the public expenditure has become an important means of anti cyclical policy because of its greater administrative convenience.
(11) In Private business, cost of production can be compared to the price of the product. But in case of the state, it is rather difficult to compare the cost of the service with the value of the service. Both cost and value can n’t be easily estimated in all cases. Defence service provides an example for this.
(12) Generally the financial operations of the individual are keep secret. They will not be open for public qaze. But the financial operations of the state are always public. They have to be approved before hand by the appropriate authority like the parliament. The people have a right to scrutinize the expenditure since they meet the bills through paying taxes.
(13) An individual can ebcome bankrupt when his assets are short of his liabilities. But there is ordinarily, no question of a state going bankrupt. The>liabilities of the state can be as certained, but its assets can’t be so precisely ascertained because they are just the pme as the assets of all the citizen together.
Question 2.
What is budget ? Discuss various types of budget.
Answer:
Budget is a financial statement of income and expenditure of public authorities. It is a reflection of not only taxation and public expenditure policy, but also of a plan for future course of action. It is designed to secure the normative ideas of allocation, distribution, stabilisations and growth. Budget, thus refers to the financial arrangement covering the income and expenditure of the Government especially for a particular year. It is an annual plan of income and expenditure of the public authorities which reflects the economic activities to be undertaken by the Government for a particular year.
Purpose : The purpose of a Government budget is varied. There are a number of objectives which the budget seeks to attain simultaneously. The overall purpose is to use the budget as an instrument of economic policy. A budget is such a plan which explicitly mentions the programmes that are to be taken up in the course of the fiscal year. Secondly, different programmes may need different durations for completion. What part of the action can be completed within a fiscal needs to be specified so that implementing agency clearly can know as to which portion of the programme should be completed within a specific year.
Thus budget spells out such year wise responsibility. Thirdly, the implementation of a programme requires availability of necessary funds. The extent of availability depends upon the budgetary sources of revenue. Hence, the programme structure has to be built which can be supported by funds. The budget draws up schemes of revenue mobilisation on the one hand and programmes of the public expenditure on the other. Fourthly, to achieve efficiency in revenue collection, the expenditure on the accounts of the collectorate is specified on the basis of the past trend, present level of cost of collection in the budget. F ifthly, to achieve efficiency in public expenditure physical targets of attainment are specified in the budget.
Sixthly, formulation of future programmes on the basis of past experience is an important purpose of the Government budget. Seventhly, an important purpose of the budget is to allow the legislature and the people to appreciate the overall programme framed in it in the back drop of prevailing economic situations. This is why a good budget is accompanied by an analytical account prevailing economic situation and financial position. Eighthly, investment, consumption and capital formation to assess the trend of growth in the economy. Ninthly, the main purpose of the budget in developed countries is to act as an analytical fiscal weapon. This is done through the manipulation of the budget balance. Lastly, the budget serves the purpose of public accountability of funds to a considerable extent.
Types of budget: As a suitable fiscal device, the budget may be classified into two categories like balanced budget and unbalanced budget. This classification of the budget is made on the basis of the difference between the total revenue (income) and total expenditure of the Government.
Balanced budget: Budget is viewed as a balanced budget if the Government revenues are equal to Government expenditures. In such budget, there exists no gap between the total income and total expenditure of the Government during a particular time-period. This sort of budget is appreciated for underdeveloped countries which suffer from chronic destability due to considerable amount of deficit. Besides, this budget avoids extravagant expenditure and thus ensures effective allocation and mobilisation of the available resources. In spite of these merits, this type of budget is not conductive to economic development which requires huge funds.
Surplus budget: Surplus budget is one type of unbalanced budget in which revenue receipts for the budget period are greater than the expenditure to be incurred. Hence, the total revenue earned through various sources of the Government has not been exhausted and some amount of income remains unspent or unutilised. This budget, though checks extravagant expenditure, is not suitable for economic development It is because the amount earned is not totally utilised. If this budget is adopted economic prosperity cannot be expected. But this budget is a cure during the period of inflation.
Deficit budget: Deficit budget is one in which revenue receipts for the budget period arc less than the expenditures required for.. In this budget, the income Of the Government becomes inadequate to meet expected expenditure. Scope for economic development. Secondly, this budget is a cure during the period of depression. But this budget is found to be inflationary if the deficit becomes, excessive. However this budget has got its overall importance as it results in economic prosperity.
In the advanced countries, a balanced budget is pursued at a time when the economy suffers neither from inflation nor from unemployment or depression so that objective of maintaining full employment with price-stability is achieved. When the economy suffers from inflation, a surplus budget is operated while a deficit budget is purchased when the economy suffers from unemployment. The developing and underdeveloped countries normally suffer from idle resources and to make their proper use, additional expenditures are incurred and hence, they mostly pursue deficit budgets.
Question 3.
Budget in an instrument of economic policy. Justify.
Answer:
Government budget is an important instrument of economic policy in both developed and developing countries. In the developed countries, the economy operates at full employment level and hence, there does not exist unemployed resources. But the economy is subject to trade cycle and therefore, occasionally faces the problems of depression of unemployment and inflation or pressure of excess purchasing power. In the underdeveloped countries, the economy operates at less than full empolyment level and hence, the main problem is how to attain economic growth. In these poor countries, growth process is faced with a number of problems. They are allocational, distributional and stabilisational. Budget serves as an important device to achieve economic development is these countries also. The following are the important ways in which the Government budget can influence the economy of a country.
(i) Revenue raising device : The Government requires enough revenue to discharge its fiscal responsibility. Modem countries have increasingly become welfare states with larger and larger State activities coming under the fold of public sector. Hence, resources have to be found in sufficient quantity. Budget secures this purpose through a financial plan. The receipts side of the budget clearly mentions the sources and the extent of funds for the purpose of financing state activities.
(ii) Incentive to economic activity: Budgetary receipts as well as expenditures ca eatly influence economic activities both in the industrial and agricultural sectors. Through tax concessions and discriminatory taxes, the budget can influence production and productivity in favour of these secto; s which the Government likes to promote. Important industries in the priority list of Government may be granted tax holiday or tax concessions in order to attract promising extrepreneurs to these ventures. Similarly, agricultural activity and production can be increased through budgetary provisions of free or subsidised supply of agricultural inputs and extension services.
(iii) Human capital formation : The most important need for a country’s economic development is human capital formation. The level of human capital formation like education, medical and public health, etc. is very poor in the underdeveloped countries. Unless people are educated and healthy, they cannot be good workers and their productivity cannot be increased. Budgetary provisions can serve this purpose. Since investment on such human capital formation is heavy and subjected to long gestation period, funds will not come from private sector. It is only the Government which can rise the level of general and technical education and of health and productive capacity by providing educational and health facilities through budgetary outlays.
(iv) Building of economic overheads : The main reason of underdevelopment of the poor countries is absence of proper economic infrastructure. Without proper transport and communication training facilities for workers and entrepreneurs, industrial development is not possible. Similarly agricultural production and productivity cannot improve in the absence of proper irrigation facilities, flood control measures, technological improvements with research and development activities etc. These facilities must be provided by the Government. The cost of supplying these services is heavy and cannot be raised directly from the beneficiaries. Therefore, these facilities are supplied free of direct charges through budgetary provision. Thus budget has tremendous influence on the industrial and agricultural development.
(v) Diversion of resources to more useful production :Free market mechanism leads to production of those goods and which give maximum investment is generally concentrated on the production of luxury commodities. It is therefore, necessary to divert resources to the production of more useful goods and services, particularly of the kind of mass consumption ones. This can be done by Government interference thorough the budget. Imposition of heavy tax on harmful and less essential goods and tax exemption or tax concessions granted to more essential goods and services can divert resources to the production of right kind of goods and services. Grant of facilities through budgetary expenditure can also do the same job.
(vi) Proper allocation of resources : Most efficient allocation of resources is given by the equality between marginal cost and price which is possible only under perfect market conditions. Underdeveloped countries seriously suffer from mal-allocation of resources. The general market conditions in private sectors are set by existence of monopoly, monopolistic competition and oligopoly. To correct this mal-allocation, the Government has to interfere either in the form, of production subsidy or supply of goods and services by public authorities so that the gap between average revenue (price) and the marginal cost is reduced as far as possible. This is the reason why the heavy investment public welfare industries which are subjected to decreasing cost conditions are increasingly coming under the fold of public sector.
(vii) Balanced development: Underdevelopment countries suffer from regional imbalance in economic development. Left to the private sector which is motivated by profit maximisation, the industries will be located in the urban and already developed areas. The Government can correct this geographical imbalance by setting up public sector industries will be located in the urban and already developed areas. The Government can correct this geographical imbalance by setting up public sector industries in backward areas. Moreover, the development of agriculture and small scale and village industries can be secured through Government patronage in the terms of supply of infrastructure facilities and various incentives or subsidy measures. This will develop the econoniy of rural areas.
(viii) Income and employment: Since underdeveloped countries, are low income economies, people live in poverty and hence, saving and investment is very low. Income of the people can be increased only through increased productivity and production. Budgetary provisions can go a ’ ng way to achieve this. When agricultural technology is improved though budgetary programmes, the income of the people engaged in agriculture rises. People get gainful employment in the sector. Improvement in small scale industries inthe backward regions will increase employment opportunities in these industries. The budgetary provisions of employment-related tax concessions can influence creation of employment opportunity in the private sector also.
(ix) Saving and investment: In-underdeveloped countries the level of saving and investment is very low. Moreover without increased saving and investment, economic growth cannot be achieved. Due to low level of income, marginal propensity to consume is very high and hence, the mass people cannot save. Public saving is, therefore necessary. Taxation of various types serves this purpose. The saving and investment of private individuals are also influenced by the savings investment related tax concessions and other budgetary subsidy programmes. Capacity and wiHjngness to work, save and invest of the people is increased through various human capital formation measures and creation of employment opportunities. These are all done through budgetary expenditures.
(x) Poverty removal: Poverty removal programme is a part and parcel or the budget in underdeveloped countries. All expenditure measures are designed in such a way that they directly or indirectly influence reduction of poverty inthe economy. Thus when budgetary resources are spent on account of education, whether general or technical and vocational, or on health measures, land
reforms, flood control and irrigation, an important objective is to remove poverty of people. Direct budgetary programmers for poverty removal are those of increasing employment opportunities and creation of community assets like those under I.R.D.P., N.R.E.P. or R.L.E.GP. schemes as in India, employment insurance, social security, consumption subsidy, public distribution system and price support programmes, low-income housing, area development, input supply, agricultural wage restructuring etc.
Question 4.
What is balanced budget ? State its merits & demerits.
Answer:
A budget is said to be balanced whose anticipated revenue and expanditure are equal. In the opinion of Prof. Dalton, “A balanced budget is that over a period of time, revenue does not fall short of expenditure.
Balanced budget may be true in accounting sense. It is nothing but a balance sheet approach. But in practice it is not easy to have a balanced budget as it tends to be either surplus or deficit as per the necessity of time. Budget can be balanced only in average, by taking a number of years together. So, balanced budget for a particular year is often theoretical. However, attempts should be taken to maintain balance as far as possible.
Merits of Balanced budget: Balanced Budget was the brain child of the classical economists for its following merits.
(i) Checks Wasteful Expenditure : In case of balanced budget, the Government designs its public expenditure according to its revenue. To assure welfare to the community, expenditure is made through rational planning. There can not be reckless and unproductive public expenditure. So, financial discipline of the Government can be assured.
(ii) Economic Stability : In case of balanced budget, what Government collects from the people and what it spends are the same. So, as believed by the classical economists, national income does not change. It brings room for neither inflation nor deflation. Economy experiences every type of normalcy.
(iii) Controls over Public Debt: In balanced budget, anticipated income and expenditure are equal. So, as there is no excess expenditure, there is no scope for public debt.
(iv) Favourable for Developed Countries : Balanced budget is a boon for developed countries. The countries which are already in the apex of development only need to continue the existing rate of development with stability. It can very well be possible through balanced budget.
(v) Limited Role of Government: In modem times, in most of the countries, Government does not like to shoulder more responsibilities Most of the economic functions are left to the private hands. So, public budget tends to be smaller. It creates room for balanced budget. All these argue in favour of balanced budget.
Demerits of Balanced Budget:- However, balanced budget has got so many demerits. Those are noted below.
(i) Paper Cultivation : A public budget should aim at provision of the maximum welfare for the community. Otherwise, all the activities, involved in preparation of budget will go down the drain. It will only be mere paper cultivation. It happens in case of balanced budget.
(ii) Not Effective in Modern World : In classical economy, Say’s Law of Market is obeyed. It suggests for a normal situation as whatever supplied is automatically demanded. Equilibrium has to prevail everywhere. In support of this, balanced budget is advocated. But in the modem world, normalcy is a dream. There are a number of problems like unemployment, over production, under production, economic instability etc. To tackle these problems, balanced budget can not be the right solution.
(iii) Not Effective for Developing Countries : Every developing country like India requires higher productive public expenditure for optimum utilisation of available resources. It can not be possible if the country follows balanced budget as it suggests for the least public expenditure and the minimum Government involvement.
(iv) Wasteful Expenditure : In the opinion of Prof. Arthur Smithies, “It is quite possible that to have balanced budget during a period of time the Government may lead to wasteful public expenditure. ” Balanced budget suffers from inadequate finance. Some of the Government projects remain incomplete.
(v) Restricts Freedom of Public Authority : Modem state is welfare oriented. To provide welfare, it has to spend on various purposes which require Himalayan public expenditure. But, due to balanced budget, the Government does not have free hand to spend and to assure welfare. All these demerits of balanced budget suggest to follow unbalanced budget as an appropriate fiscal policy.
Question 5.
What is deficit budget ? Discuss its merits & demerits.
Answer:
In case of deficit budget, anticipated expenditure is higher than anticipated revenue. Prof. Taylor has rightly mentioned deficit budget as that whose revenue receipts for the bqdget period are less than the cost payments. Deficit budget is met by the Government through public debt, issue of new notes etc.
Deficit budget has expansionary effect. When more is spent for the people than what is taxed, the national income increases in multiple. It is helpful to control deflation and to bring economic stability. It provides free hand to the Government for all round development. So most of the developing countries are following this budgetary policy.
Merits of Deficit Budget: Deficit Budget has the following merits.
(i) Increases National Income : In case of deficit budget, Government’s expenditure is higher than its income. That means, people receive more than what they pay in term of tax. As a result national income increases in multiple. There is every scope for higher economic growth.
(ii) Controls Unemployment: When deficit budget increases national income in multiple, the effective demand goes up. It encourages higher investment and employment. Employment of the economy goes on inerteasing in multiple.
(iii) Controls deflation : Deficit budget has got the capacity to increase national income in multiple. So, deflation which refers to decrease in price due to low income can be cured.
(iv) Not inflationary : Inflation occurs due to higher demand than what is supplied. It can be effectively controlled if production can be simultaneously increased with increase in demand. In case of deficit budget Government enjoys free hand to spend in various productive purpose. It leads to higher increase in national production. It brings mild inflation which is favourable to the economy.
(v) Maximum Utilisation of Resources : Deficit budget creates scope for higher productive expenditure. The available resources can be properly utilised. So, economy can grow up to its full extent. It can bring a new look to the economy.
(vi) Proper Distribution : Through deficit budget the Government enjoys scope to spend for the poor. Because of more effective employment, they can earn more. They can have better standard of living. As a result, the gap between the rich and the poor can be lessened.
(vii) Befitting for Emergency : A country confronts emergencies like war, natural calamities, epidemics etc. To face these emergencies, the Government requires to spend more. It can only be possible if it follows deficit budget. All these advantages of deficit budget present its importance as a fiscal policy. These confirm why deficit budget is a blessing for developing countries.
Demerits of Deficit Budget: Deficit budget is not an unmixed blessing. It has got the following demerits.
(i) Inflationary : Deficit budget is prone to inflation. If it is not properly managed, there will be wide gap between demand and supply, Inflation will come up.
(ii) Less Export: Deficit budget creates inflation. So, price of the goods to be exported increases. The volume of export comes down. It will reduce the amount of foreign currency in the country.
(iii) Wasteful Expenditure : Deficti budget provides free hand to the Government to spend. There is every possibility of unproductive public expenditure. To be more popular the party in power will spend for its own benefit at the cost of the benefit of the economy. It leads to misutilisation of resources.
(iv) Debt Burden : The Government meets deficit through public debt. In case of deficit budget, all the debts are not spent on productive purposes. Those become burden to the community. The country enters into debt trap. It compels the country to make fresh debt to repay old debts. Despite its demerits, deficit budget has been always considered as an effective tool of growth and development in developing countries.
Group – C
Objective type Questions with Answers
I. Multiple Choice Questions with Answers :
Question 1.
Public finance deal with
(i) income & expenditure of the government
(ii) development of the state
(iii) individual welfare
(iv) all of the above
Answer:
(i) income & expenditure of the government
Question 2.
Which is not the objective of public finance?
(i) welfare of the state
(ii) maximisation of income
(iii) individual welfare
(iv) rational adjustment of income & expenditure
Answer:
(iii) individual welfare
Question 3.
Which is not in the subject matter of public finance?
(i) public expenditure
(ii) it has got general acceptability
(iii) public debt
(iv) all of the above
Answer:
(iv) individual income
Question 4.
Which budget is preferable for UDCs?
(i) currefl depOSit
(ii) fixed deposit
(iii) saving deposit
(iv) all of the above
Answer:
(ii) fixed deposit
Question 5.
What type of dep sit is appreciated by the business man?
(i) fixed deposit
(ii) saving deposit
(iii) deposit made with bonds & securities
(iv) None of these
Answer:
(iii) deposit made with bonds & securities
Question 6.
Public finance deals with the income and expenditure of the:
(i) Central Govt.
(ii) current deposit
(iii) Local Govt.
(iv) fixed deposit
Answer:
(iv) All of the above
Question 7.
Who adjusts expenditure to income :
(i) Govt.
(ii) current deposit
(iii) Both (i) and (ii)
(iv) recurring deposit
Answer:
(ii) Individual
Question 8.
Surplus budget is a cure for:
(i) Inflation
(ii) draft
(iii) Both (i) and (ii)
(iv) both (i) and (ii)
Answer:
(i) Inflation
Question 9.
Deficit budget is a cure for :
(i) Inflation
(ii) discounting bills of exchange
(iii) Both (i) and (ii)
(iv) direct loan
Answer:
(ii) Deflation.
Question 10.
Which is applicable to balance budget?
(i) It controls unnecessay expenditure
(ii) Does not creates economy crises
(iii) Does not creates inflation
(iv) All of the above
Answer:
(iv) All of the above
Question 11.
Which is the feature of deficit budget?
(i) Increases level of income and employment
(ii) Removes the unemployment problem
(iii) Eliminates deflationary pressure
(iv) All of the above
Answer:
(iv) All of the above
Question 12.
Which is the liability of the commercial banks?
(i) all types of deposits
(ii) authorised.capital
(iii) borrowing from other banks
(iv) all of the above
Answer:
(iv) all of the above
Question 13.
Which is not the asset of the commercial banks
(i) loans & advances
(ii) cash with RBI
(iii) Reserve funds
(iv) investments
Answer:
(iii) Reserve funds
Question 14.
Which is the most liquid asset of the commercial banks?
(i) cash in hand
(ii) saving deposit
(iii) loans and advances
(iv) investments
Answer:
(i) cash in hand
Question 15.
Which is not a function of central bank?
(i) lender of the last resort
(ii) advisor to the govt.
(iii) advances loan to people
(iv) custodian of foreign exchange
Answer:
(iii) advances loan to people
Question 16.
As monopoly of note issue, RBI prints all types of notes except
(i) two rupee notes
(ii) one rupee notes
(iii) five rupee notes
(iv) fifty rupee notes
Answer:
(ii) one rupee notes
Question 17.
Which notes are issued by Ministry of finance?
(i) one rupee notes
(ii) two rupee notes
(iii) five rupee notes
(iv) all of the above
Answer:
(i) one rupee notes
Question 18.
Which bank controls credit?
(i) RBI
(ii) SBI
(iii) Regional rural banks
(iv) all of the above
Answer:
(i) RBI
Question 19.
Which is a method of credit control?
(i) bank rate
(ii) open market operation
(iii) variable cash reserve ratio
(iv) all of the above
Answer:
(iv) all of the above
Question 20.
When Reserve Bank of India increases bank rate, the demand for loan
(i) increases
(ii) decreases
(iii) not affected
(iv) none of the above
Answer:
(ii) decreases
Question 21.
Barteris:
(i) Indirect exchange of goods against goods is called barter
(ii) Direct exchange of goods against goods is called bartar.
(iii) Both (i) and (ii)
(iv) None of the above
Answer:
(ii) Direct exchange of goods against goods is called bartar.
Question 22.
Deiine moeny:
(i) Money is what money does
(ii) Direct exchange of goods against goods in money
(iii) Anything that possesses general acceptability is money
(iv) None of the above
Answer:
(iii) Anything that possesses general acceptability is money
Question 23.
The function of money are:
(i) A medium and a measure
(ii) A standard and a store
(iii) Both (I) and (ii)
(iv) None of the above
Answer:
(iii) Both (1) and (ii)
Question 24.
Money serves as a link between:
(i) The present and past
(ii) The past and future
(iii) The present and future
(iv) None of the above
Answer:
(iii) The present and future
Question 25.
Moeny facilities:
(i) Barter transaction
(ii) credit trangaction
(iii) All of the above
(iv) None of the above
Answer:
(ii) credit transaction.
Question 26.
Example of near money is:
(i) Time or fixed deposits
(ii) Bills of exchange and Treasury bill
(iii) Stock and share
(iv) All of the above
Answer:
(I) All of the above
Question 27.
A command Bank has:
(i) Unlimited credit creation power
(ii) Limited credit creation power
(iii) All of the above
(iv) None of the above
Answer:
(ii) Limited credit creation power
Question 28.
Primary function of a commercial bank is:
(i) To finance Internal and External trade
(ii) Creation of moeny
(iii) Acceptance of deposits
(iv) None of the above
Answer:
(iii) Acceptance of deposits
Question 29.
The right-hand side of the balance sheet shows the items under the:
(i) Liabilities
(ii) Assets
(iii) Cash
(iv) None of the above
Answer:
(ii) Assets.
Question 30.
Cash-in-hand is otherwise known as:
(i) Till money
(ii) Cashin-vault
(iii) Both (i) and (ii)
(iv) None of the above
Answer:
(iii) Both (j) and (ii)
Question 31.
Moeny at call and short-notice is a:
(i) Long period loans
(ii) Very short term loans
(iii) Both (i) and (ii)
(iv) None of the above
Answer:
(i) Very short term loans
Question 32.
One rupee not is issued by:
(i) R. B. I
(ii) Commercial Bank
(iii) Govt. of India
(iv) None of the above
Answer:
(iii) Govt. of India
Question 33.
Time deposits are withdrawn:
(i) On the demand
(ii) After the expiry of the period
(iii) All of the above
(iv) None of the above
Answer:
(ii) After the expiry of the period
Question 34.
Most liquid asset of a commercial bank is:
(i) Demand deposits
(ii) Investment
(iii) Cash
(iv) None of the above
Answer:
(iii) Cash
Question 35.
Under which principle the central Bank of India issues notes:
(i) Proportional reserve system
(ii) Minimum reserve system
(iii) Maximum reserve system
(iv) None of the above
Answer:
(ii) Minimum reserve system
Question 36.
Quantitative credit control method refers to:
(i) Control the use of credit
(ii) Bring change in the total volume of credit in general
(iii) All of the above
(iv) None of the above
Answer:
(ii) Bring change in the total volume of credit in general
Question 37.
The selective credit control methods adopted by the central Bank to control credit are:
(i) Open market operation
(ii) Regulation of margin-requirements
(iii) Regulation on of consumers credit
(iv) Both (ii) and (iii)
Answer:
(i) Both (ii) and (iii)
Question 38.
The function of central Bank:
(i) Lender of the lust resort
(ii) Clearing agent
(iii) Banker’s Bank
(iv) Ail of the above
Answer:
(iv) All of the above
Question 39.
Central Bank acts as a financial advisor to the:
(i) General public
(ii) Commercial Banks
(iii) Govt.
(iv) None of the above
Answer: (iii) Govt.
II. Fill in the blanks :
Question 1.
_____ adjusts income to expenditure
Answer:
Government
Question 2.
_____ expenditure is compulsory in nature.
Answer:
Public
Question 3.
Government prefers _____ budget.
Answer:
deficit
Question 4.
_____ budget creates inflation. .
Answer:
deficit
Question 5.
_____ budget creates deflation.
Answer:
surplus
Question 6.
_____ budget does not create any economic crises.
Answer:
balanced
Question 7.
_____ budget is cure for inflation.
Answer:
surplus
Question 8.
_____ budget is preferred in under developed countries.
Answer:
deficit
Question 9.
_____ budget eliminates unemployement problem.
Answer:
deficit
Question 10.
_____ budget is a cure for deflation.
Answer:
deficit
III. Correct the Sentences :
Question 1.
Government adjusts expenditure to income.
Answer:
Incorrect
Correct: Government adjusts income to expenditure
Question 2.
Private expenditure is compulsory in nature.
Answer:
Incorrect.
Correct: Public expenditure is compulsory in nature.
Question 3.
Government prefers surplus budget.
Answer:
Incorrect.
Correct: Government prefers deficit budget.
Question 4.
Budget has been derived from a Greek word.
Answer:
Incorrect.
Correct: Budget has been derived from the French words.
Question 5.
Budget is always balanced.
Answer:
Incorrect
Correct: Budget may be balanced or unbalanced.
Question 6.
Budget is meant for a financial year.
Answer:
Correct
Question 7.
Deficit budget checks wasteful expenditure.
Answer:
Incorrect.
Correct: Balanced budget checks wasteful expenditure.
Question 8.
Price stability is assured in case of surplus budget.
Answer:
Incorrect.
Correct: Price stability is assured in case of balanced budget.
Question 9.
Balanced budget controls public debt.
Answer:
Correct.
Question 10.
Surplus budget increases national income .
Answer:
Incorrect.
Correct: Deficit budget increases national income.
Question 11.
In surplus budget. Government receipts are higher than government expenditure.
Answer:
Correct.
Question 12.
Surplus budget controls unemployment.
Answer:
Incorrect.
Correct: Deficit budget controls unemployment.
Question 13.
Surplus budget leads to maximum utilisation of resources.
Answer:
Incorrect
Correct: Deficit budget leads to maximum utilisation of resources.
Question 14.
Deficit budget is contractionary; but surplus budget is expansionary
Answer:
Incorrect.
Correct: Surplus budget is contractionary but deficit budget is expansionary.
Question 15.
Surplus budget increases debt burden.
Answer:
Incorrect
Correct: Deficit budget increases debt burden.
Question 16.
Surplus budget checks unproductive expenditure.
Answer:
Correct
Question 17.
Deficit budget is inflationary.
Answer:
Correct.
Question 18.
In deficit budget price of exported goods increases.
Answer:
Correct
IV. Answer the following questions in one word :
Question 1.
What is public finance?
Answer:
Public finance is a subject that deals with the income and expenditure of the government.
Question 2.
Write a similarity that exists in both public finance & private finance.
Answer:
Both public finance & private finance have same objective i.e. satisfaction of human wants.
Question 3.
What is budget?
Answer:
Budget is the annual financial statement of the anticipated receipts & expenditure of the government for a financial year. ‘
Question 4.
From which word, the term ‘Budget’ is derived?
Answer:
The term budget is derived from the French word “Budgett”, which means small leather bag.
Question 5.
What is consolidated fund?
Answer:
Consolidated fund consists of all revenues & loan received by the government.
Question 6.
What is balanced budget?
Answer:
Balanced budget is that budget in which the anticipated receipts & expenditure of the government are equal.
Question 7.
State one merit of the balanced budget?
Answer:
Balanced budget checks unproductive expenditure.
Question 8.
What is deficit budget?
Answer:
If the estimated revenue falls short of the estimated expenditure in the budget period, it is called deficit budget.
Question 9.
What is surplus budget?
Answer:
In surplus budget, the anticipated government receipts are higher than the government expenditure during the budget period.
Question 10.
What type of budget is framed in UDCS?
Answer:
UDCS frame deficit budget.
Question 11.
Give a demerit of deficit budget?
Answer:
Deficit budget is inflationary in nature.
Question 12.
Which budget leads to maximum utilisation of resources?
Answer:
Deficit budget.