Practicing Success

Target Exam

CUET

Subject

Economics

Chapter

Macro Economics: Government Budget and Economy

Question:

The Government Budget having a revenue deficit can be financed by : _____________.

A. Borrowings

B. Tax Revenue

C. Disinvestment

D. Indirect taxes

Choose the correct answer from the options given below :

Options:

A and B only

D and C only

A and C only

B and D only

Correct Answer:

A and C only

Explanation:

The correct answer is option (3) : A and C only

  • A. Borrowings: This is a way to finance a revenue deficit. The government can borrow money from domestic or international sources to bridge the gap between its revenue and expenditure.
  • B. Tax Revenue: This is not a way to finance a deficit, but rather a way to generate revenue to avoid a deficit in the first place. Increased tax revenue would help close the deficit gap, but it's not directly financing it.
  • C. Disinvestment:This can be a way to finance a deficit. Disinvestment refers to the government selling its assets in public sector companies or other holdings. This generates revenue that can be used to cover the deficit.
  • D. Indirect Taxes: This is not a way to directly finance a deficit. Like tax revenue in general, increased indirect taxes (taxes levied on goods and services) can help raise revenue and potentially reduce the deficit, but it's not a financing mechanism itself.

Therefore, borrowing and disinvestment are the two main options for financing a government budget with a revenue deficit. These methods essentially provide the government with additional funds to cover the shortfall between revenue and expenditure.