Free Fiscal Policy 02 Practice Test - 12th Grade - Commerce 

Question 1

If the government spending multiplier is found to be 1, what is the marginal propensity to consume?

A.

0

B.

0.2

C.

0.5

D.

1

SOLUTION

Solution : A

When c=0,1(1c)=1. The marginal propensity to consume in this case is zero. However, this is not a possibility in reality.
 

Question 2

Transfer payments are ______ income to get personal disposable income.

A.

Added to

B.

Subtracted from

C.

Excluded from

D.

Not a part of

SOLUTION

Solution : A

Transfer payments are added to income to get personal disposable income.

Question 3

Match the government policy given to the appropriate type: “cutting income tax rate”

A.

Expansionary fiscal policy

B.

Contractionary fiscal policy

C.

Expansionary monetary policy

D.

Contractionary monetary policy

SOLUTION

Solution : A

Cutting the income tax rate is a expansionary fiscal policy.

Question 4

Which of the following is a major source of revenue for the government? 

A.

Personal income tax

B.

Corporate tax

C.

Legal fees

D.

Entertainment tax

SOLUTION

Solution : A

Personal income tax is the biggest revenue source.

Question 5

The difference between revenue expenditure and revenue receipts is:

A.

Revenue deficit

B.

Fiscal deficit

C.

Budget deficit

D.

Primary deficit

SOLUTION

Solution : A

The excess of revenue expenditures over revenue receipts is called revenue deficit.

Question 6

If people with higher incomes pay higher taxes, the system is called: 

A.

Value Added Tax

B.

Progressive Tax

C.

Sales Tax

D.

Regressive Tax

SOLUTION

Solution : B

This type of tax is called a progressive tax.

Question 7

Which sentence is true?

A.

An increase in the government revenues due to a tax raise stimulates the economic activity

B.

A cut in public spending or a tax raise or both tend to depress aggregate demand

C.

An increase in public spending causes a fall in the overall economic activity

D.

Only (a) and (c) are true

SOLUTION

Solution : B

Both cut in spending and rise in taxes will reduce aggregate demand and bring down economic activity.

Question 8

Fiscal Policy refers to a policy of:

A.

Money lenders

B.

Government Finance

C.

Commercial banks

D.

Monetary authority

SOLUTION

Solution : B

Fiscal policy is a policy of government finance.

Question 9

If primary deficit is Rs 6,900 and interest payment is Rs 600, then fiscal deficit is :

A.

Rs 6,300

B.

Rs 7,500

C.

Rs 7,400

D.

Rs 7,300

SOLUTION

Solution : B

Fiscal Deficit= Primary Deficit + Interest Payments

FD= 6,900 + 600= 7,500

Question 10

Direct tax is called so because it is collected directly from: (choose the correct alternative)

A.

The producers on goods produced

B.

The sellers on goods sold

C.

The buyers of goods

D.

The income earners

SOLUTION

Solution : D

Direct taxes are collected directly from income-earners.