question_answer

Distinguish between Revenue Expenditure and Capital Expenditure in a government budget. Give examples.

Or

Explain the role of Government budget in allocation of resources.

Answer:

Basis	Revenue Expenditure	Capital Expenditure
Creation of Assets	It does not create assets for the government.	It results in the creation of assets.
Reduction of Liability	These expenditures do not result in the reduction of liability.	These expenditure cause a reduction of the liability of the government
Example	(a) Interest payments (b) Expenditure on defence	(a) Purchase of shares (b) Expenditure on land, building, etc. (c) Grants by the central government to the state government
Or
In a mixed economy, private enterprises generally have a tendency to allocate resources to only those areas of production which are economically feasible and profitable. They are not guided by the service or welfare motive; in fact they are guided by the price signals. In such a situation, the government through its budgetary policy reallocates resources to maintain a balance between the social objectives of welfare maximization and the economic objective of profit maximization. For example, the government levies taxes on socially harmful goods such as tobacco and provides subsidies for the socially desirable goods such as good grains. Thus, the government through its budgetary policy allocates resources in such a manner as to maintain a balance between the profit motive and the social welfare.