Q16 of 25 Page 1

Suppose you are a member of the ‘‘Advisory Committee to the Finance Minister of India’’. The Finance Minister is concerned about the rising Revenue Deficit in the budget. Suggest anyone measure control the rising Revenue Deficit of the

government.


Revenue deficit means revenue expenditure is more than the revenue receipts. Revenue deficit leads to borrowing.

a. when the government is spending more than what it collects through revenue, it suffers a revenue deficit.


b. higher revenue deficit means higher repayment burden in the future.


c. A high revenue deficit implies that the government has to either curtail its expenditure or increase its tax and non-tax receipts.


The revenue deficit could be controlled:


(i) If the Government raises the rate of taxes especially on rich people and any new taxes wherever possible


(ii) The Government should try to reduce its expenditure and avoid unnecessary expenditure.


More from this chapter

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14

State any two examples of non-tax revenue receipts of the government.

OR


Dividends received from Public Sector Undertakings (PSUs) are a part of the government’s ____________. (Choose the correct alternative)


A. Non-tax Revenue Receipts


B. Tax Receipts


C. Capital Receipts


D. Capital Expenditure


 15

State the role played by the central bank as the ‘‘lender of last resort’’.

 17

The consumption function of an economy is : C = 40 + 0 �8 Y (amount in <crores). Determine what level of income where the average propensity to Consume (APC) will be one.

OR


Which of the two, average propensity to consume or average propensity to save, can be negative and why?


 18

Describe the adjustments that may take place in an economy when ex-ante savings are less than ex-anteinvestments.