MCQs on Government Budget and the Economy

A government budget is a financial statement prepared on an annual basis with details about the estimated revenue and expenditure during the fiscal year. It helps the administrators to understand the expected growth rates that they can achieve and address any areas of concern that may act as an impediment towards it. It is an important part of the fiscal and monetary policy of a country’s economy.

We have collated a list of multiple-choice questions on the government budget and the economy to help students get a deeper understanding of the main concepts in this topic.

  1. Which of the following statements is correct about government spending?
    1. When a government spends more than it can collect as revenue, it incurs a revenue expenditure
    2. When a government spends more than it can collect as revenue, it incurs a capital expenditure
    3. When a government spends more than it can collect as revenue, it incurs a budget deficit
    4. When a government spends more than it can collect as revenue, it incurs a budget surplus
  2. Answer: c

  3. Which of the following statements is true about the fiscal deficit?
    1. It is the difference between the total expenditure and receipts of a government excluding interest
    2. It is the difference between the total expenditure and receipts of a government excluding spending
    3. It is the difference between the total expenditure and receipts of a government excluding borrowings
    4. It is the difference between the total expenditure and receipts of a government excluding taxes
  4. Answer: c

  5. Which of the following statements is true about the primary deficit in a government’s budget?
    1. The primary deficit is zero when the revenue deficit is zero
    2. The primary deficit is zero when the net interest payments are zero
    3. The primary deficit is zero when the fiscal deficit is zero
    4. The primary deficit is zero when the fiscal deficit is equal to the interest payment
  6. Answer: d

  7. Which of the following statements is correct about direct taxes?
    1. The direct taxes are collected from the income earners
    2. The direct taxes are collected from the producers on the goods or services produced by them
    3. The direct taxes are collected from the sellers on the goods or services sold by them
    4. The direct taxes are collected from the buyers on the goods or services bought by them
  8. Answer: a

  9. What is the duration of a financial year?
    1. October 1st to September 30th
    2. April 1st to March 30th
    3. January 1st to December 30th
    4. None of the above
  10. Answer: b

  11. Which of the following statements about the capital budget is accurate?
    1. The capital budget consists of direct and indirect tax
    2. The capital budget consists of capital expenditure and capital receipts
    3. The capital budget consists of revenue expenditure and revenue receipts
    4. The capital budget consists of direct taxes
  12. Answer: b

  13. Which of the following statements describes the function of a budget?
    1. It is a description of the income and expenditure of a government
    2. It is a document containing details of the economic policy of a government
    3. It is a description of the programs of the government
    4. All of the above
  14. Answer: d

  15. Which of the following statements is true about an unbalanced budget?
    1. In an unbalanced budget, the expenditure is relatively higher than income
    2. In an unbalanced budget, the income is greater than the expenditure
    3. In an unbalanced budget, the deficit gets covered either by loans or by printing notes
    4. Only a and c are correct
  16. Answer: d

  17. Which of the following statements about the Goods and Services Tax is accurate?
    1. The Goods and Services Tax is an example of indirect tax under the government receipts
    2. The Goods and Services Tax is an example of direct tax under the government receipts
    3. The Goods and Services Tax is an example of non-tax revenue under the government receipts
    4. The Goods and Services Tax is an example of income tax under the government receipts
  18. Answer: a

  19. Which of the following is not an implication of fiscal deficit?
    1. Fiscal deficit leads to increased dependence on foreign countries
    2. Fiscal deficit helps to determine the total borrowing requirements of any government
    3. The repayment of loans with interest helps to reduce the fiscal deficit
    4. The fiscal deficit increases the liability of any government
  20. Answer: c

  21. What is the name of the process under which the government starts to sell its securities to the private sector?
    1. Disinvestment
    2. Monetary expansion
    3. Open market operations
    4. All of the above
  22. Answer: a

  23. Which of the following statements is true about the primary deficit?
    1. Primary deficit is defined as the difference between fiscal deficit and subsidies
    2. Primary deficit is defined as the difference between fiscal deficit and borrowings
    3. Primary deficit is defined as the difference between fiscal deficit and transfer payments
    4. Primary deficit is defined as the difference between fiscal deficit and interest payments
  24. Answer: d

  25. Which of the following statements is not accurate about non-tax revenue receipts?
    1. Disinvestment, external grants and dividends & profits are examples of non-tax revenue receipts
    2. Disinvestment, dividends & profits are examples of non-tax revenue receipts
    3. Disinvestment and external grants are examples of non-tax revenue receipts
    4. Goods and Services Tax is an example of a non-tax revenue receipt
  26. Answer: d

  27. Which of the following statements is true about the fiscal deficit?
    1. The fiscal deficit is financed through primary deficit
    2. The fiscal deficit is financed through revenue deficit
    3. The fiscal deficit is financed through borrowings
    4. The fiscal deficit is financed through taxes
  28. Answer: d

  29. Which of the following items is an example of capital expenditure undertaken by the government?
    1. Subsidies and defence services expenditure
    2. Construction of roads and repayment of loans
    3. Both a and b are correct
    4. Both a and b are incorrect

Answer: b

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