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CBSE · Class 12 · Social Science

Government Budget and the Economy

Standard difficulty · 20 questions · 40 marks · Time: 37 minutes

Name: Date: Score: ____ / 40

Write full answers in Sections B and C. Answers are on the last page — try every question first!

Section A — Choose the correct answer8 × 1 = 8 marks
1.
A statement of the expected receipts and expenditure of the government for a financial year is the:
  1. balance sheet of a bank
  2. national income account
  3. balance of payments
  4. government budget
2.
Which of these is a revenue receipt of the government?
  1. dividends from public sector firms
  2. small savings deposits received
  3. loans from abroad
  4. sale of shares in public sector firms
3.
Which of these is capital expenditure of the government?
  1. running costs of offices
  2. pensions
  3. salaries of government employees
  4. buying land for a hospital
4.
Suppose a government’s revenue receipts are ₹1,750 crore, non-debt creating capital receipts ₹70 crore, and total expenditure ₹2,200 crore. What is the fiscal deficit?
  1. ₹380 crore
  2. ₹520 crore
  3. ₹450 crore
  4. ₹220 crore
5.
Suppose a government’s revenue expenditure is ₹1,870 crore, revenue receipts ₹1,810 crore and capital expenditure ₹560 crore. What is the revenue deficit?
  1. ₹60 crore
  2. ₹560 crore
  3. ₹620 crore
  4. ₹1,870 crore
6.
Suppose a government’s fiscal deficit is ₹660 crore and its interest payments are ₹480 crore. What is the primary deficit?
  1. ₹180 crore
  2. ₹660 crore
  3. ₹1,140 crore
  4. ₹480 crore
7.
With an MPC of 0.5, by how much does equilibrium income rise if government purchases rise by ₹130 crore?
  1. ₹65 crore
  2. ₹130 crore
  3. ₹260 crore
  4. ₹261 crore
8.
Suppose a country’s GDP is ₹18,000 crore and its fiscal deficit is ₹1,080 crore. What is the fiscal deficit as a percentage of GDP?
  1. 6%
  2. 60%
  3. 7%
  4. 3%
Section B — Short answer8 × 2 = 16 marks
9.
What are the two features of public goods?
10.
Direct or indirect tax? (a) a sales tax on goods (b) customs duties on imports
11.
Explain each term: (a) primary deficit (b) public goods
12.
Suppose a government’s budget (₹ crore) has revenue receipts 1970, revenue expenditure 2130, capital expenditure 590, non-debt creating capital receipts 30 and interest payments 70. Find the revenue, fiscal and primary deficits.
13.
Suppose a government expects receipts of ₹2,960 crore and expenditure of ₹3,090 crore. What kind of budget is this?
14.
Suppose the revenue deficit is ₹290 crore, capital expenditure ₹400 crore and non-debt creating capital receipts ₹30 crore. Find the fiscal deficit, and say what share of it is the revenue deficit (to one decimal place).
15.
The MPC is 0.6. Compare the change in income from (a) a rise of ₹280 crore in government purchases and (b) a cut of ₹280 crore in lump-sum taxes.
16.
Which function of the budget does each serve? (a) providing roads, defence and street lights (b) transfer payments to poorer households
Section C — Longer answers4 × 4 = 16 marks
17.
Why must public goods usually be provided by the government?
18.
Match each with its meaning: (a) primary deficit (b) capital expenditure (c) balanced budget. Choose from: fiscal deficit minus interest payments; receipts equal to expenditure; spending that creates assets or reduces liabilities.
19.
Suppose a government’s budget (₹ crore) has revenue receipts 520, revenue expenditure 560, capital expenditure 190, non-debt creating capital receipts 80 and interest payments 130; GDP is 4,700. (a) Find the revenue, fiscal and primary deficits. (b) Express the fiscal deficit as a percentage of GDP (two decimal places). (c) What does the primary deficit show?
20.
The MPC is 0.8. The government raises purchases by ₹120 crore and pays for it by raising lump-sum taxes by ₹120 crore. (a) Find the rise in income from the spending. (b) Find the fall in income from the tax. (c) Find the net change and the balanced budget multiplier.
AmbifulWorksheets
Practice that never repeats
CBSE · Class 12 · Social Science

Answer key

Government Budget and the Economy · AW-12SS-GBE-2026-V1 · For parents — fold back or tear off before handing the sheet to your child.

QAnswerWorking
1(d) government budget—
2(a) dividends from public sector firms—
3(d) buying land for a hospital—
4(a) ₹380 crore2,200 − (1,750 + 70)
5(a) ₹60 crore1,870 − 1,810
6(a) ₹180 crore660 − 480
7(c) ₹260 crore130 ÷ (1 − 0.5)
8(a) 6%1,080 ÷ 18,000 × 100
9Non-rivalrous (one person’s use does not reduce another’s) and non-excludable (no one can be kept from using them).—
10(a) indirect (b) indirect—
11(a) fiscal deficit minus interest payments (b) goods that are non-rivalrous and non-excludable—
12revenue deficit ₹160 crore; fiscal deficit ₹720 crore; primary deficit ₹650 crore2,130 − 1,970; 2,130 + 590 − 1,970 − 30; 720 − 70
13a deficit budget, by ₹130 crore2,960 − 3,090
14₹660 crore; 43.9%290 + 400 − 30; 290 ÷ 660 × 100
15(a) rises by ₹700 crore (b) rises by ₹420 crore; the spending multiplier is larger280 ÷ 0.4; 0.6 × 280 ÷ 0.4
16(a) allocation (b) redistribution—
17Being non-rivalrous and non-excludable, people can use them without paying, so private firms cannot collect fees and will not supply them.—
18(a) fiscal deficit minus interest payments (b) spending that creates assets or reduces liabilities (c) receipts equal to expenditure—
19(a) ₹40 crore, ₹150 crore, ₹20 crore (b) 3.19% (c) borrowing needed for present spending, leaving out interest on past debt560 − 520; 750 − 600; 150 − 130
20(a) ₹600 crore (b) ₹480 crore (c) ₹120 crore; multiplier 1120 ÷ 0.2; 0.8 × 120 ÷ 0.2