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?
0
0.2
0.5
1
SOLUTION
Solution : A
When c=0,1(1−c)=1. The marginal propensity to consume in this case is zero. However, this is not a possibility in reality.
Question 2
Transfer payments are
Added to
Subtracted from
Excluded from
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”
Expansionary fiscal policy
Contractionary fiscal policy
Expansionary monetary policy
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?
Personal income tax
Corporate tax
Legal fees
Entertainment tax
SOLUTION
Solution : A
Personal income tax is the biggest revenue source.
Question 5
The difference between revenue expenditure and revenue receipts is:
Revenue deficit
Fiscal deficit
Budget deficit
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:
Value Added Tax
Progressive Tax
Sales Tax
Regressive Tax
SOLUTION
Solution : B
This type of tax is called a progressive tax.
Question 7
Which sentence is true?
An increase in the government revenues due to a tax raise stimulates the economic activity
A cut in public spending or a tax raise or both tend to depress aggregate demand
An increase in public spending causes a fall in the overall economic activity
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:
Money lenders
Government Finance
Commercial banks
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 :
Rs 6,300
Rs 7,500
Rs 7,400
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)
The producers on goods produced
The sellers on goods sold
The buyers of goods
The income earners
SOLUTION
Solution : D
Direct taxes are collected directly from income-earners.