Market Equilibrium Questions and Answers - Free PDF Download
FAQs on NCERT Solutions For Class 12 Economics Chapter 5 Market Equilibrium - 2025-26
1. What are the main components of a Government Budget that I need to know for solving NCERT questions for Class 12 Economics Chapter 5?
As per the CBSE 2025-26 syllabus, the Government Budget has two primary components, which are essential for solving NCERT questions. You must understand how to classify items under each:
- Revenue Budget: This includes all the revenue receipts and revenue expenditures of the government.
- Revenue Receipts: These are receipts that neither create a liability nor reduce an asset. They are further divided into Tax Revenue (e.g., income tax, GST) and Non-Tax Revenue (e.g., interest, dividends).
- Revenue Expenditure: This is an expense that neither creates an asset nor reduces a liability (e.g., salaries, pensions, subsidies).
- Capital Budget: This includes all capital receipts and capital expenditures.
- Capital Receipts: These receipts either create a liability (e.g., borrowings) or reduce an asset (e.g., disinvestment).
- Capital Expenditure: This expenditure either creates a physical or financial asset (e.g., building roads, giving loans) or reduces a liability (e.g., loan repayment).
2. How do you correctly solve a numerical problem to find the Fiscal Deficit from a given set of budget data?
To solve for Fiscal Deficit in an NCERT problem, follow these steps:
- First, identify the government's Total Expenditure by adding Revenue Expenditure and Capital Expenditure.
- Next, identify the Total Receipts excluding borrowings. This is calculated by adding Revenue Receipts and Non-debt creating Capital Receipts (like recovery of loans and disinvestment proceeds).
- Finally, apply the formula: Fiscal Deficit = Total Expenditure – Total Receipts (excluding borrowings).
Remember, the Fiscal Deficit is equal to the total borrowing requirement of the government.
3. What is the correct method to distinguish between Revenue Expenditure and Capital Expenditure with examples, as required in CBSE exams?
The correct method is to check if the expenditure leads to the creation of an asset or reduction of a liability. Here’s how you can distinguish them for your answers:
- Revenue Expenditure: This is a recurring expense for the normal functioning of the government. It does not create any asset or reduce any liability. For example, payment of salaries, pensions, and interest on debt.
- Capital Expenditure: This is a non-recurring, long-term expense. It either creates a physical or financial asset or causes a reduction in liability. For example, construction of a dam (asset creation) or repayment of a loan (liability reduction).
4. How do the NCERT Solutions for Chapter 5 explain the primary objectives of a government budget?
The NCERT Solutions explain that the government budget is a crucial tool for achieving specific economic and social goals. The primary objectives, which are frequently asked in exams, are:
- Allocation of Resources: The budget guides the allocation of the country's resources towards various sectors, balancing social welfare and economic profit.
- Redistribution of Income and Wealth: Through progressive taxation and subsidies, the government aims to reduce the gap between the rich and the poor.
- Economic Stability: The budget is used to control economic fluctuations like inflation or deflation through fiscal policy measures.
- Management of Public Enterprises: The budget provides financial support and outlines policies for public sector undertakings.
5. What is the core difference between Revenue Deficit and Fiscal Deficit that helps in solving problems?
The core difference lies in what they indicate about the government's finances:
- Revenue Deficit (Revenue Expenditure > Revenue Receipts) shows the shortfall in the government's current receipts to meet its current running expenses. It signals that the government is dissaving.
- Fiscal Deficit (Total Expenditure > Total Receipts excluding borrowings) shows the total borrowing requirement of the government from all sources to meet its expenditure. It represents the overall deficit, including both revenue and capital accounts.
In short, a revenue deficit is about the shortfall in day-to-day finances, while a fiscal deficit is about the overall borrowing needed for the year.
6. How should one classify items like 'loans to states' and 'interest payments' into the correct budget accounts for NCERT questions?
To correctly classify these items, you must apply the asset/liability rule:
- Loans to States: When the central government gives a loan to a state, it creates a financial asset for the central government (as it expects repayment with interest). Therefore, 'loans to states' is classified as a Capital Expenditure.
- Interest Payments: When the government pays interest on its past debt, it is a routine, recurring expense. This payment does not create any new asset or reduce any liability (the principal loan amount remains unchanged). Thus, 'interest payments' are classified as Revenue Expenditure.
7. Why is 'borrowing' by the government treated as a capital receipt and not a revenue receipt?
Borrowing is treated as a Capital Receipt because it creates a future liability for the government. The government is obligated to repay the principal amount along with interest in the future. According to the definition, any receipt that creates a liability is a capital receipt. In contrast, a Revenue Receipt, like tax revenue, does not create any corresponding liability for the government to repay.
8. If the Revenue Deficit is zero, does it automatically mean the Fiscal Deficit is also zero? Explain why or why not.
No, a zero Revenue Deficit does not automatically mean the Fiscal Deficit is also zero. Here's why:
- A zero Revenue Deficit simply means that the government's revenue receipts are sufficient to cover its revenue expenditure. The government is not borrowing to finance its day-to-day consumption expenses.
- However, the government may still borrow money to finance its Capital Expenditure, such as building highways, ports, or schools.
- Since Fiscal Deficit includes borrowings for both revenue and capital purposes, a positive capital expenditure financed through borrowing will result in a positive Fiscal Deficit, even if the Revenue Deficit is zero.
9. How does a government budget act as a tool for redistributing income, and what examples are relevant for answering NCERT questions on this topic?
The government budget redistributes income by influencing the disposable income of individuals and providing essential services. For NCERT answers, you can use these examples:
- Taxation Policy: The government imposes higher taxes on higher income groups (progressive taxation) and luxury goods. This reduces their disposable income.
- Subsidies and Transfers: The revenue collected is used to provide subsidies on essential goods like food grains and cooking gas for lower-income groups. It also funds social security schemes like pensions and unemployment allowances.
- Public Distribution System (PDS): The government provides essential food items at subsidised rates to the poor, which increases their real income.
This 'taking from the rich and giving to the poor' mechanism helps reduce income inequality.
10. What is the true significance of the Primary Deficit, and how does its calculation differ from the Fiscal Deficit?
The Primary Deficit reveals the true extent of the current government's fiscal indiscipline. Its significance lies in what it excludes:
- Significance: The Primary Deficit shows the borrowing requirement of the government to meet its expenses, excluding interest payments on past debts. A high primary deficit indicates that the current government's policies are causing fresh debt, whereas a low or zero primary deficit suggests that borrowings are mainly for paying off old interest obligations.
- Calculation: It is calculated by subtracting interest payments from the fiscal deficit. The formula is: Primary Deficit = Fiscal Deficit – Interest Payments.
