CBSE Class 12 Macro Economics Revision Notes Chapter 5

Introduction to NCERT Class 12 Macroeconomics Chapter 5 –  Government Budget and the Economy

The NCERT, or The National Council of Educational Research and Training, is an autonomous organisation established by India’s Government to guide the Central and State Governments on strategies and guidelines for qualitative improvement in school education. The primary purpose of NCERT is to organise, nurture and develop the school education that presents opportunities for self-learning and new ideas through model textBooks, newsletters, digital multimedia materials, supplementary material, and educational kits.

The CBSE Class 12 Macroeconomics is a branch of the Economics Syllabus that deals with the decision making, behaviour and performance of the economy. The subject is complex, but the notes are prepared by the expert faculty of Extramarks, who have made the concepts simple and straightforward. Students can refer to Class 12 Macroeconomics Chapter 5 Notes on the Extramarks website for a chapter-wise in-depth understanding of the critical topics. Economics graduates have some of the most interesting career paths: financial risk analyst, data analyst, financial planner, economic researcher, investment analyst and financial consultant. 

Extramarks is here to assist students of Class 12 by providing all the information about the CBSE syllabus, examinations, important questions and more in addition to Class 12 Macroeconomics Chapter 5 notes. The Extramarks website will give you an idea of the vital concepts and simplify your learning. 

Key Topics Covered in Class 12 Macroeconomics Chapter 5 Notes 

The key topics covered under Class 12 Macroeconomics chapter 5 notes include the following.

Introduction to Government Budget and the Economy

The government plays a supreme role in the nation’s economy apart from the private sector. A mixed economy is one where both private and public sectors influence the economy. A government budget is implemented to approach and address the needs and issues of a country. The major role of the budget in the national economy is explained in Class 12 Macroeconomics Notes Chapter 5:

  • Prioritisation of the allocation of the public resources.
  • Achieving policy goals through prudent financial groundwork. 
  • Establishing accountability for the usage of the taxpayers’ money.


A budget is an annual financial report that describes how impending revenue and expenditure will be calculated. The budget presents a country’s income and expenses. Class 12 Macroeconomics Chapter 5 Notes include all the aspects of the budget, starting from the introduction, objectives of the budget and its components, budget expenditure and implications. The budget can be categorised into revenue budget and capital budget. While the revenue budget consists of the revenue receipts and expenditures met from this revenue, the capital budget contains capital receipts and expenditures.

The Main Objectives of the Budget are:

  • Resource reallocation.
  • Public-sector management
  • Economic Development
  • Economic Stability
  • Employment Creation
  • Income and wealth redistribution

Two Components of Budget:

  1. Revenue budget: The budget incorporates the government’s revenue receipts and expenditures. The revenue budget contains both tax and non-tax revenue types of the government’s revenue receipts and the revenue expenditure.
  2. Capital budget: The Capital Budget accommodates the government’s capital receipts and payments.

Budget Receipts:

This can be sub-classified into revenue, and capital receipts and revenue receipts can be further subdivided into tax and non-tax receipts. These notes will provide sufficient examples of each category so that the students can have an in-depth understanding of the concept. The theory of receipts and expenditure has been covered completely with examples.

  1. Revenue Receipts: Revenue receipts do not result in a vulnerability or a decline in assets. The revenue is then split into two groups.
    1. Receipt from tax which includes 
      1. Direct tax: A taxpayer pays direct taxes in whole to the government. It is also a tax in which the individual bears both the obligation and the duty of payment. Based on the type of tax charged, both the central and state governments collect direct taxes.
      2. Indirect tax: The end-consumer of products and services is ultimately accountable for indirect taxes. It is impractical to avoid tariffs imposed on both products and services. As a result of convenient and planned collections, it demands lower administrative costs. 
    2. Receipt from non-tax: Non-Tax Revenue is the continual income collected from sources other than taxes by the government. These contain penalties, interest, fines, external grants, and commercial revenue.
  2. Capital receipts: Capital receipts are government receipts that generate liability or diminish financial assets. The loans from the public also referred to market borrowings, borrowings from the Reserve Bank, other financial institutions through the sale of treasury bills, small savings, provident funds, and net receipts from the sale of shares in public sector undertakings, commercial banks, loan recoveries and borrowings from foreign governments and international organisations are the main sources of capital receipts. 

Expenditure and Deficit

Expenditure is divided into revenue and capital expenditure. Another vital concept that demands time and attention is the topic of the budget deficit. Class 12 Macroeconomics Chapter 5 Notes elaborates on this topic by giving the meaning of deficit and ways to calculate it. In a straightforward way, the deficit is when the expenditure exceeds the revenues. A revenue deficit is when revenue expenditure exceeds the revenue receipts. A fiscal deficit is when the total expenditure exceeds the total revenues.

Budget expenditure includes the following.

  • Revenue expenditure

The classification of revenue expenditure is generally present or short-term. They are costs that the government must acquire to carry out its everyday operations. These costs are completely charged in the period they are obtained and do not deteriorate over time. They can be recurring or non-recurring.

  • Capital Expenditure

The one-time investments of money or capital made by a government with the aim of developing multi sectors and businesses to earn profits. These funds are generally used to acquire fixed assets or assets with a lengthy continuance. These contain manufacturing equipment, machinery, and infrastructure-improvement equipment. These assets contribute value to the government during their total lifespan and may or may not have a value to redeem.

Budget Deficit: The amount by which a budget’s expenditures are greater than its revenue is known as a budget deficit. This deficit is a good sign of a stable economy. 

Revenue deficit: Revenue deficit is explained as the difference between total revenue collected and total revenue expenditure. In revenue deficit, only current income and current expenses are covered. An enormous deficit figure suggests that the government should lower its spending. The government may be able to increase revenue by elevating taxes.

Revenue deficit = Total revenue expenditure – Total revenue receipts.

Implications of Revenue Deficit are:

  • A crucial revenue shortfall suggests budgetary indiscipline.
  • It indicates that the government is dissaving. The government applies savings from other sectors of the economy to pay its consumer expenses.
  • It exhibits the government’s enormous expenditures on administration. 
  • It reduces the government’s assets owing to disinvestment. 
  •  A notable revenue deficit sends an alert to the government to either reduce spending or increase revenue.

Fiscal Deficit: A fiscal deficit happens when the government’s total expenditures exceed its entire revenue produced. The government’s borrowings aren’t included here.

Implications of Fiscal Deficits are:

  • An important consequence of fiscal deficit is that it may end in a debt trap.
  • It suppresses future advancement.
  • It causes inflationary pressures.
  • It raises the government’s obligation.
  • It escalates reliance on foreign resources.

Primary Deficit: It is obtained by subtracting interest payments from the fiscal deficit.

Implications of Primary Deficit

It reflects how much of the government’s borrowings will be utilised to cover costs other than interest payments.

Measures to Correct Different Deficits: 

  • Government subsidy cuts will support reducing the deficit.
  • Disinvestment should be carried out where assets are not being used effectively.
  • Increased emphasis on tax-based revenues and required to avoid tax evasion.
  • Government borrowing money from both domestic and international sources.
  • A broader tax base could also help in the reduction of the government’s deficit.

By going through Class 12 Macroeconomics Chapter 5 Notes, students can learn the implications of a deficit on the economy. There are several measures to legitimate a budgetary deficit which include steps like borrowing from the public, disinvestment and many more. 

Class 12 Macroeconomics Chapter 5 Notes: Exercises and Answer Solutions

The Extramarks website presents the new and updated Class 12 Macroeconomics Chapter 5 Notes as per the latest NCERT regulations. The Extramarks also cater for the syllabus of all other subjects of the Class 12 Board Examination. Students can clear their doubts by clicking on the links to Macroeconomics Chapter 5 Class 12 Notes to prepare for the upcoming Economics board examinations.

A list of detailed solutions for all the questions is listed below:

  • Very Short Answer Type Questions and Solutions
  • Short Answer Type Questions and Solutions
  • Long Answer Type Questions and Solutions

The paper was all about Class 12 Macroeconomics Chapter 5 Notes. Go through the Extramarks website to learn more about the subject, where you can access all the content for free. In addition to the notes, students may also access the following by clicking on the respective links.

  • CBSE syllabus
  • CBSE revision notes
  • CBSE extra questions
  • CBSE previous year question papers
  • CBSE sample papers

Key Features of Class 12 Macroeconomics Chapter 5 Notes

The key features of Class 12 Macroeconomics Chapter 5 Notes include

  • In these notes, the concept is explained in detail students can write to the point covering the appropriate matter available on the Extramarks.
  • Class 12 Macroeconomics Chapter 5 Notes will assist the students in framing their answers in the examination. 
  • They are compiled by subject experts with more than a decade of experience in teaching.
  • Class 12 Macroeconomics Chapter 5 Notes help students understand the concept of the budget and its basics. They will learn about the consequence of receipts and exceeding expenditures. 

Students often find it hard to gauge the significance of every concept given in the chapter and the weightage it might carry in the exam. Class 12 Macroeconomics Chapter 5 Notes by Extramarks emphasise all the fundamental concepts that students must revise before the exam. This way, students can utilise their time carefully.

FAQs (Frequently Asked Questions)

1. What are the objectives of introducing the topic of the government budget to Class 12th?

Savings and investments are vital to a country’s overall economic prosperity. The budgetary measures are applied in order to ensure that different governmental sectors have sufficient resources. A number of government-sponsored budgetary programmes are being implemented to close the income gap between the rich and poor. Students will understand the functioning of the economy in this chapter and can also refer to Class 12 Macroeconomics Chapter 5 Notes for meticulous knowledge of the subject.

2. Where to find Important Questions for Class 12 Macroeconomics Chapter 5?

You will find the elaborated questions and answers to all your queries on Class 12 Macroeconomics Chapter 5 Notes on the Extramarks website. You can prepare well by revising CBSE Sample papers, CBSE Previous Year Question Papers, CBSE Extra Questions, Formulas, CBSE Revision Notes, Important Question, CBSE Syllabus, NCERT Books on the Extramarks website. If you earnestly practise, you can do well in the examination. The expert faculty at Extramarks is experienced in the subject and strives to make learning simpler.

3. Is Class 12 Macroeconomics Chapter 5 challenging?

 Economics is a complicated subject. Economics is regarded to be one of the most challenging commerce degrees as it mixes many subjects like business, accounts, mathematics, accounts, psychology and sociology. By practising Class 12 Macroeconomics Chapter 5 Notes available on the Extramarks, you can undoubtedly score well in the subject. The Chapter 5 Macroeconomics Class 12 Notes are highly streamlined, and you will understand all concepts and theories well.