Unit 14: Fiscal Policy - Practice Quiz

1 Fiscal policy refers to the use of which of the following by the government?

2 The word 'fiscal' is derived from a term meaning:

3 Which authority is primarily responsible for framing fiscal policy in a country?

4 Fiscal policy mainly deals with the government's decisions about taxation and:

5 Which of the following is a major objective of fiscal policy?

6 Reducing inequalities in the distribution of income and wealth is an objective of fiscal policy achieved mainly through progressive taxation and welfare spending directed at the poorer sections of society.

7 Which objective of fiscal policy focuses on providing jobs to the unemployed?

8 Maintaining stability in the general price level is known as which objective of fiscal policy?

9 Fiscal policy also aims to encourage the formation of capital in the economy. This objective is called:

10 Which of the following is a tool of fiscal policy?

11 Public expenditure, taxation, and public debt are all examples of:

12 Borrowing by the government from the public and other sources to finance its expenditure is known as:

13 A tax whose burden cannot be shifted to another person, such as income tax, is called a:

14 Spending by the government on defence, education, health, and infrastructure is referred to as:

15 Which fiscal tool involves financial help given by the government to reduce the cost of goods or services for consumers or producers?

16 Economic reforms in India were introduced mainly in which year?

17 After the economic reforms, a key aim of fiscal policy was to reduce the government's:

18 Which act was passed in India to bring discipline in government finances after the reforms?

19 During inflation, which type of fiscal policy is generally recommended?

20 To control inflation using fiscal policy, the government should ideally take which of the following steps to reduce excess demand in the economy?

21 Fiscal policy is best described as the use of government revenue collection and expenditure to influence the economy. Which authority is primarily responsible for framing fiscal policy in a country like India?

22 A government increases its spending and lowers taxes to boost demand during a recession. This is an example of:

23 Which of the following statements correctly distinguishes fiscal policy from monetary policy?

24 During a period of demand-pull inflation, which fiscal policy objective becomes the government's priority?

25 A developing economy uses progressive taxation and targeted welfare spending. Which fiscal policy objective is this primarily serving?

26 Which of the following is not typically listed as an objective of fiscal policy?

27 In an underdeveloped economy with low capital formation, a key objective of fiscal policy is to:

28 Which of the following is a direct tax, an important instrument of fiscal policy?

29 When the government borrows heavily from the market to finance its deficit, private investment may fall due to higher interest rates. This effect is known as:

30 Public expenditure is classified into capital and revenue expenditure. Which of the following is an example of capital expenditure?

31 If the marginal propensity to consume (MPC) is , the value of the government expenditure multiplier is:

32 Public debt (borrowing) as a fiscal tool is most appropriate when the government wants to:

33 During inflation, which combination of fiscal tools would help reduce aggregate demand?

34 The Fiscal Responsibility and Budget Management (FRBM) Act, introduced in the post-reform era in India, primarily aims to:

35 A major shift in fiscal policy after the 1991 economic reforms in India was:

36 Post-reform fiscal policy emphasised reducing the fiscal deficit mainly because a high deficit tends to:

37 Which reform-era measure reflects fiscal policy shifting toward greater efficiency in indirect taxation?

38 To control demand-pull inflation, a surplus budget is often recommended because it:

39 During deflation and unemployment, the appropriate fiscal response is a deficit budget because it:

40 A limitation of using fiscal policy to control inflation is the presence of time lags. Which lag refers to the delay in recognising that inflation has become a problem?

41 A government increases both its expenditure and taxation by the same amount (). Assuming a simple closed economy with MPC , what is the net change in equilibrium income according to the balanced budget multiplier theorem?

42 With an MPC of , a government wants to close a recessionary gap of billion. What is the required change in autonomous taxes (assuming lump-sum taxation)?

43 During demand-pull inflation, the government adopts a contractionary fiscal stance. Which combination of actions is internally consistent with this stance and its intended effect on aggregate demand?

44 A key conflict among fiscal policy objectives arises when a government simultaneously pursues rapid economic growth and price stability during a boom. Which statement best captures this trade-off?

45 In an economy with a marginal tax rate and MPC out of disposable income , what is the value of the government expenditure multiplier?

46 The Fiscal Responsibility and Budget Management (FRBM) Act, enacted in India post-reforms, primarily aimed to institutionalize which discipline?

47 Deficit financing through creation of new money is most likely to be inflationary under which condition?

48 Which of the following best distinguishes 'automatic stabilizers' from 'discretionary fiscal policy'?

49 A government runs a budget where tax revenue , government purchases , and transfer payments . What is the size of the budget deficit?

50 In a developing economy, fiscal policy is used to promote capital formation. Which mechanism best reflects this objective?

51 Consider an economy facing cost-push inflation from rising input prices. Why might conventional contractionary fiscal policy be less effective here than against demand-pull inflation?

52 Post-1991 reforms in India shifted fiscal policy emphasis in which direction?

53 If the government spending multiplier is and the tax multiplier is , what net change in income results from raising by billion while simultaneously raising by billion?

54 The 'crowding-out effect' associated with expansionary fiscal policy refers to which outcome?

55 Fiscal policy pursues redistribution of income as an objective. Which measure most directly serves this end without primarily targeting aggregate demand?

56 A government reduces its fiscal deficit sharply during a period of inflation but the economy is simultaneously slowing. What is the primary risk of this pro-cyclical fiscal contraction?

57 A criticism of relying on fiscal deficits for growth in the post-reform period is the emergence of a 'debt trap.' What best describes this situation?

58 An economy has , with , , , and . What is the equilibrium level of income ?

59 Which statement correctly relates the 'primary deficit' to the 'fiscal deficit'?

60 During a deep recession with an MPC of , a government prefers increasing spending over an equal-sized tax cut to achieve full employment. What is the sound economic rationale?