Economics 6 Marks Question

i. Economic stability: Free play of market forces are bound to generate trade cycles, also called business cycles. Please refer to the phases of recession, depression, recovery and boom in the economy. A government budget is used to prevent business fluctuations of inflation or deflation to achieve the objective of economic stability. The government aims to control the different phases of business fluctuations through its budgetary policy. Policies of the surplus budget during inflation and deficit budget during deflation helps to maintain the stability of prices in the economy.
ii. Re-distribution of income: Reducing inequality is a major objective of government's budget especially in developing country like India, where inequality of income and wealth is very high. The government uses its financial tools of taxation and subsidies to enhance equal distribution of income and wealth. In order to ensure equity of income, the progressive tax structure is followed in India, which imposes a higher burden of taxes on higher income group and a lesser burden on lower income group. Also, those who earn below a substantial limit are exempted from payment of taxes. The additional income generated from the higher income group is redistributed by the government in the form of subsidies to the poor sections of the society, to ensure the objective of welfare. LPG subsidy is a good example of such redistribution of income.
(iii) Revenue receipts refer to the government receipts which do not create a liability for the government and as well do not lead to a reduction in assets of the government.
The following are the characteristics of revenue receipts:
i. Revenue receipts are of recurring nature.
ii. The purpose of revenue receipts is to meet the regular expenses of the government.
iii. Revenue receipts include tax receipts and non-tax receipts.
Following are the examples of revenue receipts:
a. Income tax
b. Sales tax
c. Fees and fines
d. Interest and dividen