Question

How can fiscal and budgetary deficit be reduced?

• A. By increasing tax revenue
• B. By reducing government expenditure
• C. Both (A) and (B)
• D. None of these

Hint:

To reduce fiscal and budgetary deficits, the government can increase tax revenue or cut down on unnecessary spending, or do both.

Answer 1

The Correct Option is C

Step 1: Understanding Fiscal and Budgetary Deficits:
A fiscal deficit occurs when a government's total expenditure exceeds its total revenue (excluding borrowings). Similarly, a budgetary deficit occurs when a government's spending exceeds its revenue. Reducing these deficits is essential for maintaining fiscal health and controlling public debt.
Step 2: Methods of Reducing Fiscal and Budgetary Deficit:
There are two primary ways to reduce fiscal and budgetary deficits:
1. Increasing tax revenue: By increasing tax rates or improving tax collection, the government can increase its revenue, thereby reducing the fiscal deficit.
2. Reducing government expenditure: By cutting unnecessary government spending, the government can reduce its expenditure, thereby reducing the budgetary deficit.
Step 3: Analyzing the Options:
- Option (A) By increasing tax revenue: This is correct. Increasing taxes will boost government revenue, which can help reduce the deficit.
- Option (B) By reducing government expenditure: This is also correct. Reducing government spending will help lower the fiscal deficit by reducing total expenditure.
- Option (C) Both (A) and (B): This is the correct answer. Both increasing tax revenue and reducing government expenditure are effective methods for reducing fiscal and budgetary deficits.
- Option (D) None of these: This is incorrect because both (A) and (B) are correct.
Step 4: Conclusion and Answer:
The correct answer is (C) because reducing fiscal and budgetary deficits can be achieved by both increasing tax revenue and reducing government expenditure.