Suppose marginal propensity to consume is 0.75 and there is a 20 percent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20, (b) Transfers decrease by 20.

Explain why the tax multiplier is smaller in absolute value than the government expenditure multiplier.

1. Define ‘Revenue Expenditure’.
2. Distinguish between Direct tax and Indirect tax.

Distinguish between:

1. Capital receipts and revenue receipts.
2. Direct tax and indirect tax.

Explain how government budget can be helpful in bringing economic stabilisation in the economy.

1. How are tax receipts different from non-tax receipts? Discuss briefly.
2. State any two items of revenue expenditure in a Government budget.

Read the passage given below and answer the following questions from 1 to 4.
In the Government of India's budget for the year 2013 - 14, the Finance Minister proposed to raise the Goods and Services Tax (GST) on cigarettes. He also proposed to increase income tax on individual earning more than rupee one crore per annum.

1. Identify the taxes proposed to be increased by the Budget 2013 - 14. The taxes proposed are:

1. Goods and Services tax on cigarettes.
2. Income tax on individuals earning Rs. 1 crore or above.
3. Both [a] and [b]
4. None of the above

2. What was the objective(s) behind the proposals put forth in the Budget 2013 - 14?

1. Revenue generation
2. Social welfare
3. Both [a] and [b]
4. None of these

3. What welfare objective the government wishes to achieve by increasing GST on cigarettes?

1. This will discourage their cigarettes
2. This will encourage their cigarettes
3. Both [a] and [b]
4. None of the above

4. What would be the effect of increase in direct tax on the rich?

1. It will reduce the gap between rich and the poor, thereby reducing inequalities in income
2. It will increase the gap between rich and the poor
3. Both [a] and [b]
4. None of the above

Distinguish between revenue expenditure and capital expenditure.