Free Fiscal Policy 01 Practice Test - 12th Grade - Commerce
Question 1
What is the value of the government spending multiplier if marginal propensity to consume is 0.6?
0.1333
0.4
1.333
2.5
SOLUTION
Solution : D
The multiplier is given by 1(1−c).
So, when c = 0.6, the multiplier is 2.5.
Question 2
A tax of Rs. 100 on the sale of every car is:
Direct tax
Proportional tax
Progressive tax
Lump-sum tax
SOLUTION
Solution : D
A fixed amount of Rs. 100 would be a lump-sum tax.
Question 3
Customs duty is imposed on:
Entertainment services
Domestic sales
Imported goods
None of the above
SOLUTION
Solution : C
Customs duty is levied on both imports and exports.
Question 4
Which does the government not control directly?
Spending on health
Spending on defence
Firms' investment decisions
Spending on state education
SOLUTION
Solution : C
The government spends on health, defence, and education. Firms’ investment decisions are not controlled by the government.
Question 5
Crowding out refers to:
intended investment squeezing unsold inventories
excess consumer spending competing with foreign demand for U.S. goods
the demand for exports making U.S. goods for expensive for consumers
reducing the availability of private capital
SOLUTION
Solution : D
Crowding out refers to the process by which government deficits reduce the capital available in the economy.
Question 6
The government spending multiplier is higher as:
Higher is the government spending
Higher is the MPC
Lower is the MPC
Lower is the tax revenue
SOLUTION
Solution : B
The multiplier is directly proportional to the MPC.
Question 7
An increase in government expenditure is likely to have a greater impact on national output than a reduction in taxes. Which of the following could be reasons for this?
Consumers respond to a fall in the tax rates by saving a part of the increase in their disposable income
Employees increase work hours in response to lower taxes
A reduction in net taxes is likely to lead to higher interest rates
The increase in government spending leads to a lower fiscal deficit
SOLUTION
Solution : A
Consumers respond to a fall in the tax rates by saving a part of the increase in their disposable income.
Question 8
Which among the following is incorrect?
The Gross Fiscal Deficit (GFD) of government is the excess of its total expenditures, current and capital, including loans net of recovery, over revenue receipts (including external grants) and non - debt capital receipts
The Net Fiscal Deficit is the Gross Fiscal Deficit reduced by net lending by government
The Gross primary deficit is the GFD less interest payments
None of the above
SOLUTION
Solution : D
All these statements are true.
Question 9
Which of the following is/are implications of a fiscal deficit?
|
National debts for future generation |
|
Inflationary spiral |
|
Erosion of government credibility |
|
All of these |
SOLUTION
Solution : D
All of these are implications of a fiscal deficit.
Question 10
Total expenditure of a government budget is Rs 75,000 crore and total receipts are Rs 45,000 crore. How much is the budget deficit?
15,000
30,000
45,000
1,20,000
SOLUTION
Solution : B
Budget deficit = Revenues - Expenditure= 75,000 - 45,000= Rs 30,000 crore