If a government suffers from “Revenue Deficit” it can be said about government that –
Which of the above statements is/are correct?
If a government suffers from “Revenue Deficit” it can be said about government that –
Which of the above statements is/are correct?
The correct option is A 1 and 2 only
(Source: NCERT) statements 3 and 4 are incorrect because revenue deficit lead to reduction in expenditure . Growth and welfare are affected because government cannot cut revenue expenditure but it cuts capital expenditure that directly affects growth and welfare. Statements 1 and 2 are correct.
Revenue Deficit: - It refers to the excess of government’s revenue expenditure over revenue receipts .
Revenue Deficit = Revenue expenditure – Revenue receipts.
Extra information:
The revenue deficit includes only such transactions that affect the current income and expenditure of the govt. When the govt. incurs a revenue deficit, it implies that the government is dissaving and is using up saving of other sectors of economy to finance a part of its consumption expenditure. This situation means that the government will have to borrow not only to finance its investment but also its consumption requirements. This will lead to a built up of stock of debt and interest liabilities and force the government, eventually, to cut expenditure. Since a major part of revenue expenditure is committed expenditure. It cannot be reduced. Often the government reduces productive capital expenditure or welfare expenditure. This would mean lower growth and adverse welfare implications.
1 and 2 only
(Source: NCERT) statements 3 and 4 are incorrect because revenue deficit lead to reduction in expenditure . Growth and welfare are affected because government cannot cut revenue expenditure but it cuts capital expenditure that directly affects growth and welfare. Statements 1 and 2 are correct.
Revenue Deficit: - It refers to the excess of government’s revenue expenditure over revenue receipts .
Revenue Deficit = Revenue expenditure – Revenue receipts.
Extra information:
The revenue deficit includes only such transactions that affect the current income and expenditure of the govt. When the govt. incurs a revenue deficit, it implies that the government is dissaving and is using up saving of other sectors of economy to finance a part of its consumption expenditure. This situation means that the government will have to borrow not only to finance its investment but also its consumption requirements. This will lead to a built up of stock of debt and interest liabilities and force the government, eventually, to cut expenditure. Since a major part of revenue expenditure is committed expenditure. It cannot be reduced. Often the government reduces productive capital expenditure or welfare expenditure. This would mean lower growth and adverse welfare implications.
