MCQs on Fiscal Policy

Fiscal policy is a means to use government spending and taxation to influence the economic situation. It is different from the monetary policy that is under the control of the central bank in that country. Together these two policies can help a country to achieve its economic goals. The three main components of the Fiscal Policy of any country are – government receipts (revenue and capital), government expenditure (revenue and capital) and public debt.

Below is a list of multiple-choice questions and answers on Fiscal Policy to help students understand the topic better.

  1. One of the most significant fiscal policy objectives in India is to bring the revenue expenditures and receipts to the same level. Which of the following steps will help to achieve that objective?
    1. The efforts to raise the total profits for public sector units
    2. The efforts to improve the revenues from tax collection
    3. The efforts to slow the growth rate for expenditures in the country
    4. All of the above
  2. Answer: d

  3. Which of the following agencies is responsible for formulating the Fiscal Policy in India?
    1. Securities and Exchange Board of India (SEBI)
    2. Reserve Bank of India (RBI)
    3. Ministry of Finance, Government of India
    4. National Bank for Agricultural and Rural Development (NABARD)
  4. Answer: c

  5. Which of the following items is classified as a Capital Receipt in the budget for the Government of India?
    1. The receipts from the collection of income tax
    2. The borrowings made by the government from the public
    3. The dividends and profits received from the public sector units
    4. The interest receipts for loans given by the government to its debtors
  6. Answer: b

  7. The importance of fiscal policy in a country like India is that ___________.
    1. It plays a major role in increasing the rate of formation of capital both for public and private sector units
    2. It aims to reduce the imbalance in the distribution of income and wealth
    3. It helps to generate sufficient resources, through direct and indirect taxes, to finance the government projects
    4. All of the above
  8. Answer: d

  9. Which of the following is not a part of the revenue receipts for the Government of India?
    1. The receipts from the collection of interest amount from its debtors
    2. The receipts from the collection of corporate taxes
    3. The dividends and profits received from the public sector units
    4. The receipts from disinvestment of public sector undertakings
  10. Answer: d

  11. Which of the following is the definition of a budget deficit?
    1. Excess of the total expenditure over the total receipts minus interest payments and borrowings
    2. Excess of the total expenditure over the total receipts minus borrowings
    3. Excess of the revenue expenditure over the revenue receipts
    4. Excess of the total expenditure over the total receipts
  12. Answer: d

  13. Which of the following is a development that can occur as a result of deficit financing?
    1. The rise in inflation within the Indian economy
    2. The improvement in money supply in the Indian economy
    3. The increase in government debt
    4. All of the above
  14. Answer: d

  15. Which of the following steps under the fiscal policy is an example for stabilising the economy?
    1. Making payments towards unemployment insurance benefits
    2. Making payments towards pensions for retired military personnel
    3. Allocating more capital for spending on construction of national highways
    4. Decreasing the supply of money within the economy
  16. Answer: a

  17. Which of the following steps under the fiscal policy is an example for stabilising the economy?
    1. Making payments towards unemployment insurance benefits
    2. Making payments towards pensions for retired military personnel
    3. Allocating more capital for spending on construction of national highways
    4. Decreasing the supply of money within the economy
  18. Answer: a

  19. Which of the following is included as a part of the capital budget for the government of India?
    1. Loans provided to foreign governments
    2. Financial assistance provided by institutions like the World Bank and International Monetary Fund
    3. Expenditure made towards acquiring of foreign aircrafts
    4. All of the above
  20. Answer: d

  21. Which of the following is the best explanation for ‘Capital Gains Tax’ in India?
    1. It is a tax levied on the profits from the selling of shares that were held for more than 12 months
    2. It is a tax levied on the interest that was received from bank fixed deposits
    3. It is a tax levied on the profits from the sale of a capital asset during the financial year
    4. It is the tax levied on dividends received from corporate bonds
  22. Answer: c

  23. Which of the following is not a part of the development expenditure undertaken by the Government of India?
    1. The grants provided to state governments
    2. The expenditure towards providing community and social services
    3. The expenditure towards providing economic services
    4. The expenditure as a part of the defence budget
  24. Answer: d

  25. Which of the following is true about the annual budget prepared by the Government of India?
    1. It is a part of the money-saving policy of the government
    2. It is a part of the fiscal policy of the government
    3. It is a part of the monetary policy of the government
    4. It is a part of the commercial policy of the government
  26. Answer: b

  27. Which of the following describes the correct scenario if the Government of India fails to pass the budget?
    1. The entire council of ministers have resigned and the government falls down
    2. The Finance Minister requests the speaker of the house for extra time to pass the budget
    3. The budget from the last year continues
    4. None of the above
  28. Answer: a

  29. Which of the following is the correct meaning for the revenue budget?
    1. It is the difference between revenue expenditure and revenue receipts
    2. It is the total revenue deficit excluding grants in aid to create assets for states
    3. It is the total revenue deficit including grants in aid for developing assets for states
    4. It is the difference between total expenditure and total receipts
  30. Answer: b

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