Question

Consider the following statements:

A. Revenue deficit is fiscal deficit minus the interest payments.
B. Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing.
C. When a government spends more than it collects by way of revenue, it incurs a budget surplus.

How many of the above statement/statements is/are correct?

1. Only one statement
2. Only two statements
3. Only three statements
4. None of the statements

Answer 1

Correct Answer: Only one statement

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Analysis of the Statements:

1. Statement A: Revenue deficit is fiscal deficit minus the interest payments.

   • Incorrect:
     • Revenue deficit is the shortfall in the government's revenue account, meaning the government's revenue expenditure exceeds its revenue receipts.
     • It is not derived by subtracting interest payments from the fiscal deficit.

2. Statement B: Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing.

   • Correct:
     • Fiscal deficit is indeed the difference between the government’s total expenditure and total receipts (excluding borrowings).

3. Statement C: When a government spends more than it collects by way of revenue, it incurs a budget surplus.

   • Incorrect:
     • A budget surplus occurs when the government's total revenue exceeds its total expenditure.
     • Spending more than revenue leads to a budget deficit, not a surplus.

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Conclusion:

• Only Statement B is correct.
• Thus, the correct answer is Only one statement.