Answer :

(a) Revenue deficit is the situation in which the economy’s revenue expenditure is greater than the revenue receipts. It is the excess of revenue expenditure over the revenue receipts. It includes the repayment of borrowing expenditure; therefore it shows a clear picture of the government's borrowing.


Revenue Deficit = Revenue Expenditure – Revenue Receipts


Revenue expenditure: This expenditure includes that expenditure which is for a short period of time. The interest repayments of borrowing are included in revenue expenditure.


Revenue Receipts: The revenue receipts can be divided into non- tax revenue and tax revenue. The government collects revenue from both tax and other sources. There are different types of taxes collected by the government and non-tax revenue includes profit and interests.


(b) The fiscal deficit is the difference between the total expenditure of the government and the revenue receipt plus those capital receipts which are not in the nature of borrowings but which finally accrue to the government.


Fiscal Deficit = Revenue receipt + Capital Receipt – Total Expenditure.


Revenue Receipts: The revenue receipts can be divided into non- tax revenue and tax revenue. The government collects revenue from both tax and other sources. There are different types of taxes collected by the government and non-tax revenue includes profit and interests.


Capital Receipts: These receipts mainly include which are in long term. The main items of capital receipt are borrowing by the government from different sources, grants received from foreign countries etc.


Total expenditure includes both the revenue and capital receipts. It is the total expenditure incurred by the government during a period.


The fiscal deficit can also be considered as budgetary deficit plus borrowing and other liabilities. A fiscal deficit indicates the amount of borrowing the government has to repay.


(c) Primary deficit is fiscal deficit minus interest payment. Primary deficit indicates how much government borrowing is going to meet expenses other than interest payment. It reflects the extent of the current government policies according to the future burden.


Primary Deficit = Fiscal deficit – Interest payment


Interest payments include the total amount the interest payment that is made by the government according to the borrowing.


OR


(a) A government budget is an annual financial statement showing item wise estimates of expected revenue and anticipated expenditure during a fiscal year. One of the main functions of the government budget is to mobilize sufficient resources for investment in the public sector.


Allocation of resources is the main function of the budget. Allocation of resources is the process of distributing excess resources to the people who are resourceless or poor. Resources include both income and wealth. The allocation of the resources by the government will be considering the social and economic factors. Budget is the tool used for the allocation. The poor are being allocated resources through various schemes by the government which is included in revenue expenditure. Excess resources are also being collected by the people who are rich in the form of tax, which is included in revenue receipts.


Moreover, the government provides many subsidies and scholarships for the welfare of the poor people who have no access to many resources.


(b) A government budget is an annual financial statement showing item wise estimates of expected revenue and anticipated expenditure during a fiscal year. One of the main functions of the government budget is to reduce the income inequalities in the economy.


A budget helps to reduce the income inequality in the economy. Allocation of resources will majorly reduce the inequality between rich and poor. Income inequality can be also be reduced by the efficient budget. Government launches many programs for supporting poor and to enhance their income. MNREGA is one of the programs which are launched by the government to ensure employment opportunity for major people. These schemes are included in the budget and revenue for these schemes is also being utilized from the budget. Thus the efficient budget will reduce the income disparity among the people in the country.


Tax and subsidies are the main tools used to address the problem of income inequality through an efficient budget. The rich are taxed more and subsidies are given to the poor to supplement their income.


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