A persistent recession leads to low revenue receipts of the government. Comment.

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Solution

Economic recession is a situation when low AD leads to low investment and therefore, low growth rate of GDP. When growth rate of GDP falls, tax revenue of the government (through direct as well as indirect taxation) tends to suffer. Implying slowdown of revenue receipts of the government during recession.

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Comment on the following statements as true or false, with a reason.

(i) Construction of school-building is a revenue expenditure of the government.

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(iii) Dividends on investment made by government is a revenue receipt.

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R s . 40 c r o r e s

R s . 90 c r o r e s

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