Question

suppose that government expenditure is constant analyse graphically the effect of lamp sum and proportional tax on the equilibrium level of national income​

Answer 1

Answer:

We introduced the government in chapter one as denoting

the state. We stated that apart from the private sector,

there is the government which plays a very important role.

An economy in which there is both the private sector and

the Government is known as a mixed economy. There are

many ways in which the government influences economic

life. In this chapter, we will limit ourselves to the functions

which are carried on through the government budget.

This chapter proceeds as follows. In section 5.1 we

present the components of the government budget to bring

out the sources of government revenue and avenues of

government spending. In section 5.2 we discuss the topic of

balanced, surplus or deficit budget to account for the

difference between expenditures and revenue collection. It

specifically deals with the meaning of different kinds of

budget deficits, their implications and the measures to

contain them. Box. 5.1 deals with fiscal policy and a simple

description of the multiplier. The role the government plays

has implications for its deficits which further affect its debt-

what the government owes. The chapter concludes with an

analysis of the debt issue.

5.1 GOVERNMENT BUDGET — MEANING AND ITS COMPONENTS

There is a constitutional requirement in India (Article 112) to

present before the Parliament a statement of estimated receipts

and expenditures of the government in respect of every financial

year which runs from 1 April to 31 March. This ‘Annual Financial

Statement’ constitutes the main budget document of the

government.

Although the budget document relates to the receipts

and expenditure of the government for a particular financial

year, the impact of it will be there in subsequent years.

There is a need therefore to have two accounts- those that

relate to the current financial year only are included in the

revenue account (also called revenue budget) and those that

concern the assets and liabilities of the government into

the capital account (also called capital budget). In order to

understand the accounts, it is important to first understand

the objectives of the government budget.

2020-21