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Government Budget and the Economy Class 12 Notes CBSE Macro Economics Chapter 5 (Free PDF Download)

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Revision Notes for CBSE Class 12 Macro Economics Chapter 5 - Free PDF Download

Class 12 Economics Chapter 5 Notes have been prepared by the experts at Vedantu to help the students revise the concepts of the chapter thoroughly before the exams. The experts have used their experience and specialized knowledge to summarise the important concepts of the chapter in a methodical manner. It is very important for students in Class 12 to be clear with the fundamentals of economics as these are used as the base for specialized topics in economics in higher classes. Economics Class 12 Chapter 5 The Government - Functions and Scope is an important chapter and helps the students in learning about the budget.

Download CBSE Class 12 Macro Economics Revision Notes 2023-24 PDF

Also, check CBSE Class 12 Macro Economics revision notes for all chapters:


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Access Class 12 Macroeconomics Chapter 5 - Government Budget and the Economy

Budget: A budget is a year-long financial report that explains how future revenue and expenditure will be calculated item-wise. The budget details a country's revenue and expenditures.


The Main Objectives of the Budget are:

  • Resource reallocation.

  • Income and wealth redistribution

  • Public-sector management

  • Economic Stability

  • Economic Development

  • Employment Creation


Two Components of Budget:

1. Revenue budget: The revenue budget is made up of the government of India's revenue receipts and the expenditures that are met with that revenue.

2. Capital budget: Capital receipts and payments are included in the capital budget. It also includes transactions from the Public Account.


Budget Receipts

1. Revenue Receipts: Revenue receipts are those that do not result in a liability or a decrease in assets. The revenue is then split into two categories.

  • Receipt from tax

a. Direct tax: A taxpayer pays direct taxes in full to the government. It is also characterised as a tax in which the individual bears both the duty and the burden of payment. According to the type of tax charged, both the central government and state governments collect direct taxes.

b. Indirect tax: The end-consumer of products and services is ultimately responsible for indirect taxes. It is impossible to avoid because taxes are levied on both products and services. It entails lower administrative costs as a result of convenient and regular collections.

  • Receipt from non-tax: These include interest, commercial revenue, external grants, fines, penalties, and so on.


2. Capital Receipts: Capital receipts are government receipts that create liability or deplete financial assets. The main sources of capital receipts are loans from the public, also known as market borrowings, as well as borrowings from the Reserve Bank, commercial banks, and some other financial institutions through the sale of treasury bills, borrowings from foreign governments and international organizations, and loan recoveries. Small savings, provident funds, and net receipts from the sale of shares in Public Sector Undertakings are among the other items (PSUs).


Budget Expenditure

1. Revenue expenditure: The nature of revenue expenditure is generally current or short-term. They are costs that the government must incur to carry out its daily operations. These costs are fully charged in the year they are incurred and are not depreciated over time. They might either be recurring or non-recurring.

2. Capital Expenditure: Capital expenditures are one-time investments of money or capital made by a government for the aim of expanding in various sectors and businesses in order to create profits. These funds are typically used to acquire fixed assets or assets with a longer lifespan. These include machinery, manufacturing equipment, and infrastructure-improvement equipment. These assets provide value to the government during their entire lifespan and may or may not have a salvage value.

Budget Deficit: The amount by which a budget's expenditures exceed its revenue is referred to as a budget deficit. This deficit is a good indicator of the economy's financial health.

Revenue deficit: Revenue deficit is defined as the difference between total revenue collected and total revenue expenditure. Only current income and current expenses are included in this deficit. A large deficit figure implies that the government should reduce its spending. The government may be able to boost revenue by raising tax revenue.

Revenue deficit = Total revenue expenditure – Total revenue receipts


Implications of Revenue Deficit are:

  • A significant revenue shortfall indicates budgetary indiscipline.

  • It indicates that the government is dissaving, i.e., the government is utilizing savings from other sectors of the economy to pay its consumer expenditure.

  • It indicates that the government is dissaving, i.e., the government is utilizing savings from other sectors of the economy to pay its consumer expenditure.

  • It demonstrates the government's excessive expenditures on administration. 

  • It lowers the government's assets owing to disinvestment. 

  •  A significant revenue deficit sends a warning signal to the government to either cut spending or boost revenue.


Fiscal Deficit: A fiscal deficit occurs when the government's total expenditures exceed its entire revenue produced. The government's borrowings, however, are not included.

Fiscal deficit = Total expenditure – Total receipts excluding borrowings


Implications of Fiscal Deficits are:

  • A significant drawback or consequence of fiscal deficit is that it may result in a debt trap.

  • It causes inflationary pressures.

  • It stifles future advancement.

  • It increases reliance on foreign resources.

  • It raises the government's obligation.

Primary Deficit: It is derived by subtracting interest payments from the fiscal deficit.

Primary deficit = Fiscal deficit – Interest payments on previous loans


Implications of Primary Deficit:

  • It reflects how much of the government's borrowings will be used to cover costs other than interest payments.


Measures to Correct Different Deficits: 

  • Government subsidy cuts will aid in reducing the deficit.

  • Where assets are not being used efficiently, disinvestment should be carried out.

  • Increased emphasis on tax-based revenues, as well as necessary steps to prevent tax evasion.

  • Borrowing from both domestic and international sources.

  • A broader tax base could also aid in the reduction of the government's deficit.


Fiscal Policy: Keynesian economics, a theory developed by economist John Maynard Keynes, serves as the foundation for fiscal policy. It is the system by which a government makes changes to its planned expenditure and tax rates in order to monitor and influence the performance of a country's economy. It is implemented in tandem with monetary policy, by which the central bank of the country impacts the country's money supply. This policy influence aids in containing inflation, increasing employment, and, most significantly, maintaining a healthy currency value.

Debt: A quantity of the money borrowed by one entity, the borrower, from another entity, the lenders, is referred to as debt. Governments borrow money to cover their deficits, which allows them to fund regular operations as well as large capital expenditures. This debt might be in the form of a loan or bond issuance. 


Class 12 Macroeconomics Chapter 5 Notes PDF

Class 12 Macroeconomics Chapter 5 Notes will also help the students in framing their answers in the question paper. Most of the time, a concept is explained in detail in the chapter but the same matter cannot be reproduced in the exam as it is difficult to learn and can make the answer unnecessary lengthy. With the help of these revision notes, students can write to the point answers, covering the appropriate matter. Chapter 5 Economy Class 12 Notes PDF by Vedantu can also be accessed by the students online from anywhere, anytime.


Budget

Chapter 5 Macroeconomics Class 12 Notes cover all the aspects of the budget, starting from the objectives of the budget and its components. The budget can be classified into revenue budget and capital budget. While the revenue budget consists of the revenue receipts and expenditure met from this revenue, the capital budget includes capital receipts and expenditure.


Budget Receipts

Budget receipts can be sub-classified into revenue and capital receipts and revenue receipts can be further subdivided into tax and non-tax receipts. These notes will provide ample examples of each category so that the students can understand the concept well. Concepts of receipts and expenditure have been covered well in these notes, complete with examples and the importance of each.


Expenditure and Deficit

Just like receipts, expenditure can also be divided into revenue and capital expenditure. When students are learning about the budget, another important concept that warrants time and attention is the topic of the budget deficit. Economics Chapter 5 Class 12 Notes elaborates on this topic by giving the meaning of deficit and ways to calculate it. In simple words, when the expenditure exceeds the revenues, it leads to a deficit. When revenue expenditure exceeds the revenue receipts, it leads to a revenue deficit. When the total expenditure exceeds the total revenues, it leads to a fiscal deficit.

There are implications of a deficit on the economy and by going through these revision notes students can learn them easily as they have been stated in an easy-to-learn format. There are several measures to correct a budgetary deficit which include steps like borrowing from the public, disinvestment among others that have been included in the notes. The easy pointers can be retained by the students and can be elaborated upon in the exam.

By going through the revision notes students can understand the concept of the budget and its components. They will learn about the effects of receipts exceeding expenditure and vice versa. Students often find it difficult to gauge the importance of every concept given in the chapter and the weightage it might carry in the exam. CBSE Class 12 Macroeconomics Chapter wise Notes by Vedantu highlight all the key concepts that students must revise before the exam. This way students can utilize their time wisely.

Conclusion 

The availability of free PDF download notes for CBSE Class 12 Macroeconomics Chapter 5 - "Government Budget and the Economy" is an invaluable resource for students. These notes provide a structured and comprehensive overview of the intricate relationship between government budgets and economic stability. Understanding this topic is not only crucial for academic excellence but also for comprehending the broader economic landscape. These notes simplify complex concepts like fiscal policy, government revenue, and expenditure, making it easier for students to grasp and apply these principles. Ultimately, these downloadable notes empower students to understand the vital role of government budgets in shaping an economy, promoting fiscal responsibility and informed citizenship.

FAQs on Government Budget and the Economy Class 12 Notes CBSE Macro Economics Chapter 5 (Free PDF Download)

1. What is the Difference Between Direct Taxes and Indirect Taxes?

Macroeconomics Class 12 Chapter 5 Notes explain the difference between direct and indirect taxes with the help of examples. Taxes form an important part of the revenue for the government. Direct taxes are the taxes of which the burden cannot be shifted to others. The Impact and incidence of these taxes are on the same person, eg wealth tax. Indirect taxes are the taxes for which the burden can be shifted to others. The impact and incidence of these taxes fall on different people, eg, service tax. Students can refer to the government budget and the economy class 12 notes to understand this difference clearly.

2. How do These Revision Notes Help the Students in Preparing for the Exams?

Budget is an important concept in economics and understanding all its components is vital for students to grasp further knowledge on this topic. The revision notes have been curated by the experts after a careful and thorough study of the chapters. The notes have been prepared, keeping in mind the concepts on which questions are based. The explanations for every concept have been given in a format that can be formulated into answers by the students. Each topic is followed by examples, and equations to help the students revise easily.

3. What is a government budget Class 12?

A government budget is a country's document or yearly financial statement that shows estimated revenue and expenditure of one by one every item during the course of that year. This government budget is presented on the budget day in Lok Sabha. In India, the financial year begins on April 1st and ends on March 31st of the following year. The government develops a budget based on its goals, and then begins to collect the resources and finances needed to complete the investment.

4. What are the objectives of the government budget 12th?

Savings and investments are essential to a nation's overall economic prosperity. As a result, budgetary measures are implemented in order to ensure that different governmental sectors have enough resources. Economic savings and investments are boosted by the government. A number of government-sponsored budgetary programmes are being implemented to close the income gap between the wealthiest and the poor in the country. Financial measures such as subventions or taxes can help attain this goal. It's a top priority for the Budget to reduce the market's pricing fluctuations.

5. How do you measure the government deficit?

There are majorly three ways to measure the government deficit, which are as follows:

  • Revenue Deficit- The difference between government revenue expenditures and total revenue receipts is known as the revenue deficit.

  • Fiscal Deficit- It is the difference between government expenses and the total receipts, excluding borrowing, that determines the fiscal deficit.

  • Primary Deficit- The primary deficit's purpose is to focus on the current fiscal imbalances, which is why it is measured. Basically, it's the budget deficit minus interest payments. 

6. What are the important topics covered in Class 12 Macroeconomics Chapter 5 revision notes?

Vedantu makes sure not to leave a single important topic unnoticed. All the topics are briefly explained in the revision notes provided by Vedantu. Following are the important questions that are covered in Class 12 Macroeconomics Chapter 5 revision notes:

  • Components of government budget

  • The revenue account- revenue expenditure and receipts

  • The capital account- capital expenditure and receipts

  • Measures of government deficit- revenue, fiscal and primary deficit

  • Fiscal policy

  • Changes in government expenditure

  • Changes in taxes

  • Debt

7. Where can I get the NCERT solutions for Class 12 Macroeconomics Chapter 5 in PDF format?

Vedantu app and Vedantu website both offer the NCERT Solutions for Class 12 Macroeconomics Chapter 5 in PDF format which can be downloaded for free of cost. Every chapter ends with a set of questions which Vedantu answers in-detail in its NCERT Solutions. You can use these solutions to prepare for your exams by going through them and practicing them regularly. It's simple, just visit the page CBSE Class 12 Macro Economics Revision Notes Chapter 5 and you'll be taken to a page with the NCERT Solutions.