Learn CBSE Economics Index Terms for Class 12, Part 2, Chapter 5, Government Budget and the Economy
1. Mixed Economy – In a mixed economy, both the private sector and the public sector play a role in the economy. The private sector consists of businesses that are privately owned and operated for profit. The public sector consists of businesses that are owned and operated by the government.
The two sectors work together to provide goods and services to the people. The private sector produces goods and services for profit. The public sector produces goods and services for the benefit of the people.
The government regulates the activities of the private sector to protect consumers and promote competition. The government also provides goods and services that the private sector does not provide, such as education and national defence.
The mixed economy provides a balance between the private sector and the public sector. It allows for private businesses to flourish while also providing for the needs of the people.
2. Government Budget – The government budget is the monetary transactions made by a government to carry out its policies, as well as the account that every government prepares periodically. Therefore, the government budget often refers to all the tax revenues and expenditures incurred by the government to meet its obligations and fulfil its objectives with respect to fiscal management. In addition, it also represents the difference between the revenues and expenditures of a country that accumulate over time. The balance sheet of the government budget shows how much money a country has at any given time.
The government budget is a statement of the government’s plan and target expenses, over a period of time, to provide for the needs of the economy. It aims to further economic growth and reduce unemployment through fiscal management and monetary policy.
The government budget is a consolidated financial statement of the government showing its financial activity during a specific period of time. It shows the money that was spent in government and shows how it was spent by looking at expenditures, revenues and changes in the stock of assets.
A government’s budget is a document that details how much money a government wants to spend and how much it currently has in cash. The budget is an important step in the overall planning process for a government. It provides information about how much money will be collected from taxpayers, by what means, and whether additional taxes or spending cuts are needed to balance the budget.
3. Budget – In economics, a budget is an outline of the annual expenditures and income of a household or company. It is used to plan a course of economic activity and make informed decisions along the way.
The budget is the total of all spending, investment, and revenue made available to a business or organisation over a period of time. The budget has a fundamental role in guiding planning, decisions and performance.
A budget is a summary of all available resources and is used to plan and manage financial activities, including related investments. Budgeting is often useful when preparing for taxes, as it provides an overview of current income and expenditure.
The budget describes the central economic policies and a projection of expenditures and revenues for a specified period. The budget is one of the primary tools that any government uses to guide its spending and taxation decisions.
4. Revenue Budget – A revenue budget is a budget that allocates resources to the final stages of production. It can also be known as revenue-accrual and income budget. In the accounting sense, it is one of the base plans applied in calculating the profits and losses because it is based on revenue earned by the company during a particular period of time.
A revenue budget is a means of determining a target revenue required by the government to achieve its development goals. Revenue expenditure is the portion of a gross domestic product that can reasonably be expected to be spent on government benefits and subsidies.
A revenue budget is an inventory of resources, money, materials, labour etc., that a business uses to produce products or services. This happens at the beginning of the year and the end of every month. A revenue budget must show how much money a business needs to make in each category for every month throughout the year (January through December). The sales department prepares a monthly revenue budget at the end of each month reporting actual sales only not overhead or profit.
Revenue is commonly defined as the difference between gross and net income, or it can be expressed as total revenue. Revenue is a Key Performance Indicator (KPI), which indicates how well a business is performing by comparing its level with that of its competitors.
5. Capital Budget – A capital budget is all about how much money sets aside for a particular project. It is also known as capital expenditure in economics. Capital budgeting is a process used by organisations to identify, plan for and obtain funds for capital investments. Capital budgeting identifies the value proposition or benefits derived by the company from these investments, taking into account both internal and external factors. Capital budgeting provides businesses with information regarding the long-range revenue generated by spending on a particular aspect of their operation.
The capital budget is a forecast of the amount of money that will be needed to finance and construct a new manufacturing plant, office building or other significant investment. It is typically prepared by a manager or executive with the responsibility for identifying opportunities for growth and expansion in the firm’s operations.
Capital budgeting, also known as investment budgeting, is a planning and modelling decision-making process for implementing improvements to existing capital and operating assets. The objective of the capital budgeting process is to improve performance as measured by return on investment or return on capital from facility assets.
6. Public Goods – Public goods are those that do not benefit an individual or cannot be valued. Most governments provide a few public goods like clean air and an efficient highway system, but often a private business owner would provide these services at a much higher cost to the consumer.
Public goods are a particular type of market failure in which the service produced is non-excludable and non-rival. It is most commonly described as one where there are no internal costs associated with use, so it does not create any externalities for potential users.
A public good is a type of good that can be consumed by anyone but has no owner that can be identified. It differs from a common-pool resource, where the individual has a cost and benefit share.
7. Private Goods – In economics, a private good is one that people can buy only with their resources and cannot be bought or sold in the marketplace. Private goods are also called non-rivalrous and non-excludable.
Private goods are any goods that are not publicly traded. The distinction between public and private goods is quite a subtle one, especially in terms of the opportunity for government intervention and regulation.
Private goods are those that are produced with zero externalities. Examples of private goods include cars, food and any other goods produced efficiently. Private goods are those that are non-rivalrous and non-excludable in nature. They can be transferred from one person to another without being taken away by the seller, such as food.
8. Excludable – Excludable is the term used to describe how goods are categorised. In economics, it is used to classify something as a good. So if one has an apple and some apples aren’t included in the sale of the apple, then those apples are called excludable.
The general meaning of excludable is “made eligible by the law for exclusion from coverage” or “relating to exclusion from physical protection (skin immunity), such as an exemption from military service.” Excludable means that only a limited number of people can be excluded.
9. Free-riders – Free riding is a concept in the theory of economics. In free-riding, one participant obtains benefits (such as costs avoided and monopoly market power) while remaining outside such activity under the voluntary agreement between participants.
The free-rider problem: A situation in which one party to trade benefits from the cost of providing goods or services does not bear its full cost and is not subject to the same market forces as those providing the benefit.
Free-riders are beneficiaries of an otherwise non-free public good. They are potential users because they may benefit from a non-free public good without providing any contribution. If everyone were to contribute, the actual cost would be less than the benefit received by free riders.
In economics, a free rider is someone who takes advantage of the work of others without ever having to pay the costs. However, free riders can abdicate their responsibilities by simply not paying for the benefit they take advantage of.
10. Public Provisions – In economics, public provisions are goods or services that governments purchase for their citizens. Such provisioning intends to provide an infrastructure for future economic growth and sustainability.
Public provisions are the supply of domestic output that is made available to the market by the government. Provisioning covers the allocation and distribution of goods and services supplied by the public sector, including the input of goods and services into production. Public provisions are the goods or services provided by governments.
Public provision is a term used to define a welfare state that is the cause of economic and political independence, with sensible economic exploitation of resources and modern social services.
11. Public Production – In economics, public production is a combination of products or services where the cost of production is controlled by the market-decision maker and is made available for purchase by profit-making firms. It can be contrasted with private production, where costs are not controlled, and the product goes directly to market without the assistance of a producer.
Public production is a mode of production that brings the result of the system’s production process into the hands of society as a whole. Public production is a measure of the contributions made by all individuals to physical or human capital. All individuals, both private and public, contribute through labour, and in many cases, by saving and investing, but mainly through productive economic activities.
The public production theory is an economic model that attempts to explain the origin and evolution of the modern corporation of social interactions between consumers and producers, and it expresses the notion that individual efforts lead to increases in wealth which reduces inequality.
12. Redistribution Function – The redistribution function is the function that utilises a set of variables, information technology and social norms to best understand the amount of redistribution to each level of income earners in an economy.
In economics, the redistribution function is a measure of the socioeconomic position of an individual or group of individuals (or a country) after changes in prices and incomes. This is particularly useful if the change in income occurs simultaneously with a change in other variables such as prices, debt, taxes and savings rates.
The redistribution function is a measure of the effect that a policy has on income levels. It is used to determine whether changes in the distribution of rewards and burdens would result from a proposed policy.
The redistribution function represents the sum of different items to be allocated to an agent. The amount each agent receives is determined by a formula that must balance out what the agent earned from their efforts, as well as any funding received from the government or business.
13. Stabilisation Function – The stabilisation function is a measure of demand for money in a given economy, which gives the percentage value of M2 and is used to determine how much money is needed to target inflation.
The stabilisation function is a method of price control used in the United States during World War II and other times of war or national emergencies.
The stabilisation function of an economy is a measure of the relationship between inflation and unemployment. An increase in output leads to lower prices and higher real wages, which decreases the cost of production and increases income. Falling prices make investment more attractive, increase demand for goods and services, improving employment opportunities. The government may use fiscal policies such as tax cuts or increased public spending to encourage investment.
The stabilisation function is the basis for evaluating how policy responses influence economic outcomes. It is a function that transforms the wealth part of the national income account into money, which can then be used to measure changes in the price level and capital stock.
14. Revenue Receipts – Revenue receipts are defined as any income received by a business in the form of cash or an equivalent. Revenue receipts are the income that a country earns from the export of goods or services. It is different from taxes which are money being paid for public welfare or protection.
Revenue receipts are the government’s income and expenditure sums, as well as taxes, duties, and other receipts. Revenue receipts come from all kinds of sources, including central and state sales tax, employment insurance and other social benefits payments, natural resources royalties, corporate profits and dividends, seigniorage and property taxes. Revenue receipts are received by governments through two broad categories: operating revenues (usually collected by sales tax) and non-operating revenues (usually collected by municipal property taxes).
Revenue receivables are the sum of all valuables, such as money and goods, owed to a company by clients or customers. Company revenue is the amount of sales made by a business. Revenue receipts can refer to cash or liabilities. When receiving goods for purchase or sale, a seller has revenue when the goods are received and paid for. A consumer goes through a similar process in purchasing products and services through an agent or store.
15. Capital Receipts – Capital receipts are a key part of national income accounting. They represent the money that a country receives from the sale of its assets, such as land, minerals, stocks and bonds. This money can be used to finance government spending or investment.
Capital receipts can also come from foreign sources, such as loans or aid. These inflows can help a country finance its development projects or purchase needed supplies.
Capital receipts are an important part of a country’s economy and should be managed carefully to ensure that they benefit the country as a whole. Capital receipts are a type of economic activity that refers to the inflows of money into a country or jurisdiction. This money can come from foreign investors, businesses or individuals. Capital receipts are often used to finance government spending and investment projects.
16. Surplus – Surplus is the difference between the amount of money that people are willing to pay for something and the amount of money that it costs to produce it. In other words, the surplus is the amount of money that producers are willing to sell their goods for minus the amount of money it costs them to make those goods.
The surplus can be either positive or negative. A positive surplus indicates that producers are willing to sell their goods for more than it costs them to make them, while a negative surplus indicates that they are willing to sell their goods for less than it costs them to make them.
Surplus is important because it is a key indicator of economic efficiency. When there is a surplus of a good or service, it means that resources are being used efficiently and that production is meeting or exceeding demand. Conversely, when there is a deficit of a good or service, it means that resources are not being used efficiently and that production is not meeting demand.
In a free market economy, prices are determined by the forces of supply and demand. When there is a surplus of a good or service, prices will tend to fall.
17. Deficit – A budget deficit occurs when the government spends more money than it receives. The government has to borrow money to make up the difference. A deficit is not necessarily a bad thing. In fact, some economists argue that a deficit is necessary for a healthy economy.
The key is to ensure that the deficit is sustainable. That means the government should only borrow as much as it can afford to repay without putting undue strain on the economy. A deficit occurs when a government spends more money than it takes in through revenue. This can happen either through overspending or through under-taxation. Deficits can be financed either by borrowing money or by printing more money.
18. Automatic Stabiliser – The meaning of automatic stabilisers in economics is when a government sets the interest rate on the base currency, thereby stabilising the value of other currencies against its own by reducing the supply of imported goods.
Automic stabiliser is a theory of value and an economic model developed by Israel Kirzner. The theory of economic rationality focuses on the concept that entrepreneurs, acting in the role of producers, profit by exploiting the knowledge they have about their plans and those of other actors in making decisions, thereby taking advantage of disequilibria (the difference between the expected value and realised plan) that are caused by ignorance regarding future events.
An automatic stabiliser is a tool that helps investors manage their portfolios. The tool uses historical data to identify trends and find investment opportunities/threats.
Automatic stabilising of economic activity: The role of automatic stabilisers is to respond quickly to business cycles or changes in aggregate demand. Automatic stabilisers include unemployment benefits, ad hoc income subsidies for the poor, sales and excise taxes, inflation and gold prices.
19. Discretionary Fiscal Policy – In economics, discretionary fiscal policy is a form of fiscal stimulus. It comprises decisions by governments to increase or decrease spending in response to changes in economic conditions. Discretionary fiscal policy differs from the use of automatic stabilisers such as unemployment insurance and welfare benefits for the poor who are subject to those systems. The objective of discretionary fiscal policy is to alleviate economic conditions by stimulating demand and investment.
Discretionary fiscal policy refers to the ability of the government, a particular political entity or a political body to address economic and financial problems without relying on their spending power or income. It is often used as a disciplinary tool by the government to control inflation and deflation, social unrest and state support for specific agencies or institutions.
Discretionary fiscal policy is any governmental commitment to deficit or surplus in excess of the automatic stabilisers in response to economic circumstances. Discretionary fiscal policy can be contrasted with automatic fiscal policy, which are budget lines that are set automatically by the market or technically necessary for high inflation; discretionary fiscal policy can be contrasted with automatic stabilisers such as automatic income transfers.
Discretionary fiscal policy refers to the set of fiscal policies that are decided by the government, whether this be through taxation or borrowing. The government can use this to respond to changes in their economy, and these changes are often influenced by a range of factors, from the state of the global economy and its potential impact on exports to public moods, which can affect how much a government is willing to spend on themselves as opposed to infrastructure.
20. Ricardian Equivalence – In economics, the Ricardian equivalence theorem is an economic principle that states that in an idealised model of the economy, the market price for goodwill equals its real price.
Ricardian equivalence is the economic theory that attributes to supply and demand the ability to equate the price of a commodity exactly. Theoretically speaking, Ricardian equivalence suggests that individuals are following those prices only if each can predict future prices accurately.
Ricardian equivalence is a theory that the economy can be understood as a collection of individual consumers and producers. Both behave rationally according to their own self-interest and choose to maximise their gains while minimising losses. This rationality is defined in terms of the marginal rate of substitution, which depends on how much money one has and how valuable it is to switch from one good to another. The key assumption of Ricardian equivalence is that individuals have no way to communicate or identify the true value of an alternative good in advance; all such information must be inferred from observed prices, sales, and quantities.
In economics, the concept of Ricardian equivalence states that changes in a market’s outputs and quantities, but not prices or quantities demanded/offered, do not alter the Pareto efficiency or equivalence between marginal cost and marginal benefit.
We hope that the offered Economics Index Terms for Class 12 with respect to Part II, Chapter 5: Government Budget and the Economy, will help you.
Related Links:
- Class 12 Economics Index Terms Part I Chapter1: Introduction
- Class 12 Economics Index Terms Part I Chapter 2: Theory of Consumer Behaviour
- Class 12 Economics Index Terms Part I Chapter 3: Production and Costs
- Class 12 Economics Index Terms Part I Chapter 4: The Theory of the Firm Under Perfect Competition
- Class 12 Economics Index Terms Part I Chapter 5: Market Equilibrium
- Class 12 Economics Index Terms Part II Chapter 1: Introduction
- Class 12 Economics Index Terms Part II Chapter 2: National Income Accounting
- Class 12 Economics Index Terms Part II Chapter 3: Money and Banking
- Class 12 Economics Index Terms Part II Chapter 4: Determination of Income and Employment
- Class 12 Economics Index Terms Part II Chapter 5: Government Budget and the Economy
- Class 12 Economics Index Terms Part II Chapter 6: Open Economy Macroeconomics
