Fiscal Policy(12th Grade > Economics - 2 ) Questions and answers for exam Preparation

12th Grade > Economics - 2

FISCAL POLICY MCQs

Total Questions : 30 | Page 1 of 3 pages

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

Discuss Question

Answer: Option D. -> 2.5
:
D
The multiplier is given by

\frac{1}{(1 - c)}

.
So, when c = 0.6, the multiplier is 2.5.

Question 2. A cut in direct taxes on households’ income:

Has no effect
Shifts the aggregate demand curve to the left
Shifts the aggregate demand curve to the right
Moves the economy along the aggregate demand curve

Discuss Question

Answer: Option C. -> Shifts the aggregate demand curve to the right
:
C
A cut in direct taxes causes a rightward shift of the AD curve.

Question 3. Companies pay Corporate Tax on their:

Investment
Production
Sales proceeds
Profits

Discuss Question

Answer: Option D. -> Profits
:
D
Corporate taxes are levied on company’s profits.

Question 4. Fiscal Deficit =

Total expenditure - Total receipts other than borrowing
Revenue expenditure - Revenue receipts
Capital expenditure - Capital receipts
Revenue expenditure + Capital expenditure - Revenue receipts

Discuss Question

Answer: Option A. -> Total expenditure - Total receipts other than borrowing
:
A
Fiscal Deficit =Total expenditure - Total receipts other than borrowings

Question 5. Fiscal Responsibility and Budget Management Act (FRBMA) ACT 2003 concerns:

Fiscal deficit only
Revenue deficit only
Both fiscal and revenue deficit
Neither fiscal nor revenue deficit

Discuss Question

Answer: Option C. -> Both fiscal and revenue deficit
:
C
The FRBMA was adopted to ensure complete fiscal stability in the economy.

Question 6. 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

Discuss Question

Answer: Option D. -> The income earners
:
D
Direct taxes are collected directly from income-earners.

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

Discuss Question

Answer: Option B. -> A cut in public spending or a tax raise or both tend to depress aggregate demand
:
B
Both cut in spending and rise in taxes will reduce aggregate demand and bring down economic activity.

Question 8. 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

Discuss Question

Answer: Option B. -> Rs 7,500
:
B
Fiscal Deficit= Primary Deficit + Interest Payments
FD= 6,900 + 600= 7,500

Question 9. Find Fiscal Deficit from the information given below:
Items (Rs in lakh)
(i) Borrowing by the government 600
(ii) Revenue receipts 100
(iii) Capital receipts 750
(iv) Interest payment 150

Discuss Question

Answer: Option C. -> 600
:
C
Fiscal Deficit= Borrowings= 600 lakh

Question 10. Which of these is a side effect of deflation?