Through the allocation function of the budget, the government provides certain goods and services which cannot be provided by the market mechanism i.e. by exchange between individual consumers and producers. Examples of such goods are national defence, roads, parks, government administration etc. which are referred to as public goods.

The redistribution function of government budget includes collecting taxes and making transfers i.e. providing subsidies, pensions etc. It is through this that the government can change the distribution of income and bring about a distribution that is considered ‘fair’ by society. This is the redistribution function. Hence, the correct answer is (D).

Source) Introductory macroeconomics; Chapter 5; page number 67

Statement 1 is correct. In the case of private goods, anyone who does not pay for the goods can be excluded from enjoying its benefits. If you do not buy a ticket, you will not be allowed to watch a movie at a local cinema hall. However, in the case of public goods, there is no feasible way of excluding anyone from enjoying the benefits of the good. That is why public goods are called non-excludable. Even if some users do not pay, it is difficult and sometimes impossible to collect fees for the public good.

Statement 2 is incorrect. Public goods may be produced by the government or the private sector. When goods are produced directly by the government it is called public production.

Source) Introductory macroeconomics; Chapter 5; page number 67

Revenue receipts are those receipts that do not lead to a claim on the government. They are therefore termed non-redeemable. They are divided into tax and non-tax revenues. Tax revenues, an important component of revenue receipts, have for long been divided into direct taxes (personal income tax) and firms (corporation tax), and indirect taxes like excise taxes (duties levied on goods produced within the country), customs duties (taxes imposed on goods imported into and exported out of India) and service tax.

Source) Introductory macroeconomics; Chapter 5; page number 68

Both the statements are incorrect. Sale of government assets, like sale of shares in Public Sector Undertakings (PSUs) which is referred to as PSU disinvestment, reduce the total amount of financial assets of the government. All those receipts of the government which create liability or reduce financial assets are termed as capital receipts. When government takes fresh loans it will mean that in future these loans will have to be returned and interest will have to be paid on these loans. Similarly, when government sells an asset, then it means that in future its earnings from that asset, will disappear. Thus, these receipts can be debt creating or non-debt creating.

Source) Introductory macroeconomics; Chapter 5; page number 69

Revenue Expenditure is expenditure incurred for purposes other than the creation of physical or financial assets of the central government. It relates to those expenses incurred for the normal functioning of the government departments and various services, interest payments on debt incurred by the government, and grants given to state governments and other parties (even though some of the grants may be meant for creation of assets).

Source) Introductory macroeconomics; Chapter 5; page number 69

Net borrowing at home includes that directly borrowed from the public through debt instruments (for example, the various small savings schemes) and indirectly from commercial banks through the Statutory Liquidity Ratio (SLR). The gross fiscal deficit is a key variable in judging the financial health of the public sector and the stability of the economy.

Disinvestment of Public Sector Undertakings means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets. Unlike borrowings, it does not create liabilities for the government but reduces the financial capital of the government.

Source) Introductory macroeconomics; chapter 5; page number 72

Statement 1 is correct. Balance of Trade (BOT) is the difference between the value of exports and value of imports of goods of a country in a given period of time. BOT is said to be in balance when exports of goods are equal to the imports of goods. Surplus BOT or Trade surplus will arise if country exports more goods than what it imports. Whereas, Deficit BOT or Trade deficit will arise if a country imports more goods than what it exports.

Statement 2 is incorrect.  Export of goods is entered as a credit item in BOT, whereas import of goods is entered as a debit item in BOT. It is also known as Trade Balance. 

Source) Introductory macroeconomics; Chapter 6; page number 87

Both the statements are Incorrect. The capital account records all international purchases and sales of assets such as money, stocks, bonds, etc. We note that any transaction resulting in a payment to foreigners is entered as a debit and is given a negative sign. Any transaction resulting in a receipt from foreigners is entered as a credit and is given a positive sign.

Capital account transactions are two way and multiple transactions. It means paid money can be recovered through periodical income and /or by disposal of the asset created. Likewise, the received money needs to be repaid periodically and settle finally by repaying the full amount.

For example from the loan paid to a foreigner, periodical interest income is received, the paid principal amount can be recovered from the debtor at the same time.

Source) Introductory macroeconomics; Chapter 6; page number 89