Public Finance Questions

1. What is the primary objective of public finance?

o A) Economic growth
o B) Income redistribution
o C) Government expenditure management
o D) Efficient allocation of resources
o Correct Answer: D) Efficient allocation of resources
2. Which of the following is NOT a source of public revenue?
o A) Taxes
o B) Borrowing
o C) Public enterprises
o D) Private donations
o Correct Answer: D) Private donations
3. What type of tax is a sales tax?
o A) Direct tax
o B) Indirect tax
o C) Proportional tax
o D) Regressive tax
o Correct Answer: B) Indirect tax
4. Which of the following is an example of a direct tax?
o A) Value Added Tax
o B) Income Tax
o C) Customs Duty
o D) Excise Duty
o Correct Answer: B) Income Tax
5. What is meant by the term 'fiscal policy'?
o A) Control of money supply
o B) Regulation of financial institutions
o C) Government policy regarding taxation and spending
o D) International trade policies
 o Correct Answer: C) Government policy regarding taxation and spending
6. Which of the following is a characteristic of a good tax system?
o A) Simplicity
o B) Elasticity
o C) Certainty
o D) All of the above
o Correct Answer: D) All of the above
7. What does the term 'public expenditure' refer to?
o A) Spending by private companies
o B) Spending by the government on goods and services
o C) Spending by non-profit organizations
o D) Investment by foreign entities
o Correct Answer: B) Spending by the government on goods and services
8. Which of the following is a method of public debt repayment?
o A) Taxation
o B) Inflation
o C) Borrowing more
o D) Selling public assets
o Correct Answer: A) Taxation
9. What does the term 'budget deficit' signify?
o A) Government expenditure exceeds its revenue
o B) Government revenue exceeds its expenditure
o C) Balanced budget situation
o D) Surplus budget
o Correct Answer: A) Government expenditure exceeds its revenue
10. Which of the following is a progressive tax?
o A) Sales tax
o B) Property tax
o C) Income tax
o D) Excise tax
 o Correct Answer: C) Income tax
11. Which fiscal policy tool is primarily used to stimulate economic growth?
o A) Decrease in government spending
o B) Increase in taxes
o C) Increase in government spending
o D) Increase in interest rates
o Correct Answer: C) Increase in government spending
12. What is the purpose of the Fiscal Responsibility and Budget Management
(FRBM) Act?
o A) To control inflation
o B) To ensure fiscal discipline
o C) To regulate public borrowing
o D) To boost public expenditure
o Correct Answer: B) To ensure fiscal discipline
13. Which of the following is an impact of high public debt?
o A) Increased government investment
o B) Higher interest payments
o C) Increased tax revenue
o D) Improved public services
o Correct Answer: B) Higher interest payments
14. What is the primary function of taxation?
o A) Redistribution of wealth
o B) Revenue generation for government
o C) Regulation of the economy
o D) All of the above
o Correct Answer: D) All of the above
15. Which principle of taxation suggests that those with higher incomes should pay
more tax?
o A) Benefit principle
o B) Ability to pay principle
o C) Horizontal equity
 o D) Vertical equity
o Correct Answer: B) Ability to pay principle
16. What is meant by 'public goods'?
o A) Goods produced by the government
o B) Goods that are non-excludable and non-rivalrous
o C) Goods that are free to consumers
o D) Goods with significant externalities
o Correct Answer: B) Goods that are non-excludable and non-rivalrous
17. Which of the following is a method of estimating public expenditure?
o A) Historical method
o B) Incremental budgeting
o C) Program budgeting
o D) All of the above
o Correct Answer: D) All of the above
18. What is the primary source of revenue for state governments in India?
o A) Income tax
o B) Sales tax
o C) Corporate tax
o D) Excise tax
o Correct Answer: B) Sales tax
19. What does the term 'transfer payment' refer to?
o A) Payments made for goods and services
o B) Payments made by the government without any return benefit
o C) Payments made to foreign governments
o D) Payments made for public projects
o Correct Answer: B) Payments made by the government without any
return benefit
20. Which of the following is a consequence of budget deficits?
o A) Increased national savings
o B) Rising inflation
 o C) Decreased public services
o D) All of the above
o Correct Answer: B) Rising inflation
21. Which tax is levied on the income of individuals?
o A) Goods and Services Tax (GST)
o B) Corporate Tax
o C) Income Tax
o D) Capital Gains Tax
o Correct Answer: C) Income Tax
22. What is the primary purpose of a budget?
o A) To control inflation
o B) To plan government expenditures and revenues
o C) To regulate monetary policy
o D) To manage foreign reserves
o Correct Answer: B) To plan government expenditures and revenues
23. Which of the following describes a regressive tax system?
o A) Higher income earners pay a lower percentage of their income
o B) All taxpayers pay the same percentage
o C) Higher income earners pay a higher percentage of their income
o D) Only lower-income earners pay taxes
o Correct Answer: A) Higher income earners pay a lower percentage of
their income
24. Which of the following is considered a non-tax revenue source?
o A) Income tax
o B) Goods and Services Tax (GST)
o C) Profits from public enterprises
o D) Property tax
o Correct Answer: C) Profits from public enterprises
25. What is the primary challenge of public finance management?
o A) Reducing public debt
 o B) Ensuring efficient allocation of resources
o C) Increasing government revenue
o D) Controlling inflation
o Correct Answer: B) Ensuring efficient allocation of resources
26. Which of the following is a feature of a good tax?
o A) Certainty
o B) Convenience
o C) Economy in collection
o D) All of the above
o Correct Answer: D) All of the above
27. What does the term 'capital expenditure' refer to?
o A) Spending on day-to-day operations
o B) Spending on long-term assets
o C) Spending on social welfare
o D) Spending on public debt
o Correct Answer: B) Spending on long-term assets
28. Which of the following is an example of a public good?
o A) National defense
o B) Private education
o C) Toll roads
o D) Club goods
o Correct Answer: A) National defense
29. What is the economic theory behind public goods?
o A) They should be provided by the private sector
o B) They create market failures
o C) They lead to overconsumption
o D) They should be funded by user fees
o Correct Answer: B) They create market failures
30. Which of the following is a limitation of direct taxes?
o A) They can be easily evaded
 o B) They are progressive in nature
o C) They ensure equity
o D) They contribute to government revenue
o Correct Answer: A) They can be easily evaded
31. What is the impact of inflation on public finance?
o A) Decreases government revenue
o B) Increases real burden of debt
o C) Increases nominal GDP
o D) All of the above
o Correct Answer: D) All of the above
32. Which of the following statements is true regarding public finance?
o A) It only focuses on government revenue
o B) It includes the study of government expenditure and taxation
o C) It ignores the impact of externalities
o D) It is irrelevant in a market economy
o Correct Answer: B) It includes the study of government expenditure and
taxation
33. What is the term used for a tax that is imposed on the value added at each stage
of production?
o A) Income Tax
o B) Capital Gains Tax
o C) Value Added Tax (VAT)
o D) Excise Tax
o Correct Answer: C) Value Added Tax (VAT)
34. Which fiscal policy tool is primarily used to control inflation?
o A) Increase in government spending
o B) Decrease in taxes
o C) Decrease in government spending
o D) Increase in public debt
o Correct Answer: C) Decrease in government spending
35. What does 'public debt' refer to?
 o A) The total amount borrowed by private individuals
o B) The total amount borrowed by the government
o C) The amount of money in circulation
o D) The assets owned by the government
o Correct Answer: B) The total amount borrowed by the government
36. Which of the following is an indirect tax?
o A) Wealth tax
o B) Service tax
o C) Corporate tax
o D) Capital gains tax
o Correct Answer: B) Service tax
37. What is the impact of public expenditure on economic growth?
o A) Always negative
o B) Neutral
o C) Can be positive if directed toward productive areas
o D) Always positive
o Correct Answer: C) Can be positive if directed toward productive areas
38. What does the term 'deficit financing' mean?
o A) Financing through government loans
o B) Financing government expenditures through borrowing
o C) Financing through increased taxes
o D) Financing through asset sales
o Correct Answer: B) Financing government expenditures through
borrowing
39. Which of the following is a consequence of fiscal deficit?
o A) Increased public investment
o B) Inflationary pressures
o C) Decreased borrowing costs
o D) Improved credit rating
o Correct Answer: B) Inflationary pressures
40. Which tax is based on a fixed amount per unit?
o A) Ad valorem tax
o B) Specific tax
o C) Progressive tax
o D) Regressive tax
o Correct Answer: B) Specific tax
41. What is the purpose of public financial management?
o A) To increase government revenue
o B) To ensure accountability in public spending
o C) To eliminate public debt
o D) To control inflation
o Correct Answer: B) To ensure accountability in public spending
42. Which of the following is a method for measuring the fiscal deficit?
o A) Total Revenue - Total Expenditure
o B) Total Expenditure - Total Revenue
o C) Total Assets - Total Liabilities
o D) Total Income - Total Assets
o Correct Answer: B) Total Expenditure - Total Revenue
43. What is the main feature of a value-added tax (VAT)?
o A) It is levied only on imported goods
o B) It is imposed at a single stage of production
o C) It is levied at each stage of the supply chain
o D) It is a direct tax
o Correct Answer: C) It is levied at each stage of the supply chain
44. Which of the following is NOT a characteristic of a good tax system?
o A) Equity
o B) Complexity
o C) Certainty
o D) Convenience
o Correct Answer: B) Complexity
45. What is the impact of tax evasion on public finance?
o A) Increases government revenue
o B) Reduces government revenue
o C) No impact
o D) Increases public trust
o Correct Answer: B) Reduces government revenue
46. What is 'tax incidence'?
o A) The final burden of the tax
o B) The total tax collected
o C) The efficiency of tax collection
o D) The distribution of tax benefits
o Correct Answer: A) The final burden of the tax
47. What is the purpose of the Goods and Services Tax (GST)?
o A) To increase the tax burden
o B) To simplify the tax structure
o C) To eliminate all indirect taxes
o D) To provide subsidies
o Correct Answer: B) To simplify the tax structure
48. What is a common consequence of high public expenditure?
o A) Increase in public savings
o B) Inflationary pressures
o C) Improved public services
o D) Increased tax revenue
o Correct Answer: B) Inflationary pressures
49. Which of the following is a function of the budgetary system?
o A) To regulate the banking sector
o B) To allocate resources and control expenditure
o C) To manage monetary policy
o D) To determine interest rates
o Correct Answer: B) To allocate resources and control expenditure
50. Which of the following describes 'debt sustainability'?
o A) The ability to pay back loans
o B) The ability to maintain public services without debt
o C) The ability to keep interest rates low
o D) The ability to sustain high levels of inflation
o Correct Answer: A) The ability to pay back loans
51. What is the principle behind 'benefit taxation'?
o A) Those who benefit from government services should pay for them
o B) Taxes should be based on income levels
o C) All taxpayers should contribute equally
o D) Only wealthy individuals should pay taxes
o Correct Answer: A) Those who benefit from government services should
pay for them
52. What is 'public choice theory'?
o A) A theory that explains the behavior of government officials
o B) A theory that describes how public goods are provided
o C) A theory that analyzes the economic behavior of voters
o D) A theory that suggests optimal tax rates
o Correct Answer: A) A theory that explains the behavior of government
officials
53. Which of the following is considered an economic rationale for public
expenditure?
o A) Redistributing wealth
o B) Providing public goods
o C) Stabilizing the economy
o D) All of the above
o Correct Answer: D) All of the above
54. What is the effect of government borrowing on interest rates?
o A) Always lowers interest rates
o B) Has no effect
o C) Can increase interest rates
 o D) Only affects short-term rates
o Correct Answer: C) Can increase interest rates
55. Which of the following is a major component of government expenditure?
o A) Subsidies
o B) Interest payments on debt
o C) Defense spending
o D) All of the above
o Correct Answer: D) All of the above
56. What is 'public financial management'?
o A) Managing personal finances
o B) Managing the financial activities of the government
o C) Managing private sector investments
o D) Managing international financial institutions
o Correct Answer: B) Managing the financial activities of the government
57. Which of the following is an example of a non-tax revenue source for the
government?
o A) Corporate tax
o B) Sales tax
o C) Fees for government services
o D) Income tax
o Correct Answer: C) Fees for government services
58. What does 'crowding out' refer to in the context of public finance?
o A) Increased private investment due to government spending
o B) Reduced private sector spending due to government borrowing
o C) Increased public savings
o D) Decreased government borrowing
o Correct Answer: B) Reduced private sector spending due to government
borrowing
59. What is a major disadvantage of inflation for the government?
o A) Reduces the burden of public debt
o B) Increases the purchasing power of government revenue
 o C) Increases uncertainty in the economy
o D) Decreases government spending
o Correct Answer: C) Increases uncertainty in the economy
60. Which of the following represents a fundamental aspect of fiscal policy?
o A) Balancing the budget
o B) Redistributing income
o C) Regulation of banks
o D) Stabilizing currency
o Correct Answer: B) Redistributing income
61. What is 'tax expenditure'?
o A) Government spending on tax administration
o B) Loss of revenue due to tax exemptions and deductions
o C) Spending on tax incentives
o D) Money spent by taxpayers on taxes
o Correct Answer: B) Loss of revenue due to tax exemptions and deductions
62. Which of the following is a consequence of excessive government spending?
o A) Increased economic growth
o B) Rising public debt
o C) Lower inflation
o D) Improved public services
o Correct Answer: B) Rising public debt
63. What does 'fiscal space' refer to?
o A) The room for increasing public spending without jeopardizing financial
stability
o B) The amount of money allocated for public spending
o C) The physical space for government offices
o D) The fiscal policy framework
o Correct Answer: A) The room for increasing public spending without
jeopardizing financial stability
64. What is the role of the central bank in public finance?
o A) To collect taxes
 o B) To regulate government spending
o C) To control monetary policy
o D) To invest in public projects
o Correct Answer: C) To control monetary policy
65. Which of the following taxes is considered a progressive tax?
o A) Flat tax
o B) Sales tax
o C) Income tax
o D) Property tax
o Correct Answer: C) Income tax
66. What does the term 'public goods' refer to?
o A) Goods that are produced by private firms
o B) Goods that are available for purchase in the market
o C) Goods that are non-excludable and non-rivalrous
o D) Goods that are only consumed by the government
o Correct Answer: C) Goods that are non-excludable and non-rivalrous
67. What is the significance of 'budget surplus'?
o A) It indicates that the government is overspending
o B) It allows the government to pay down debt
o C) It increases inflationary pressures
o D) It has no significance
o Correct Answer: B) It allows the government to pay down debt
68. What is 'tax avoidance'?
o A) Illegal methods to reduce tax liability
o B) Legally minimizing tax liability
o C) Failing to file taxes
o D) Paying taxes late
o Correct Answer: B) Legally minimizing tax liability
69. Which of the following best describes 'public sector efficiency'?
o A) The ability to produce public goods at the lowest cost
 o B) The ability to generate profit
o C) The ability to minimize taxes
o D) The ability to maximize public spending
o Correct Answer: A) The ability to produce public goods at the lowest cost
70. What is 'automatic stabilizers' in public finance?
o A) Government interventions that stabilize the economy
o B) Taxes and transfers that automatically change with economic conditions
o C) Fixed government expenditure policies
o D) Policies that increase tax rates during recessions
o Correct Answer: B) Taxes and transfers that automatically change with
economic conditions
71. Which fiscal policy tool is used to stimulate economic growth?
o A) Increasing taxes
o B) Reducing government spending
o C) Increasing government spending
o D) Decreasing public debt
o Correct Answer: C) Increasing government spending
72. What is the primary goal of public finance?
o A) To maximize government revenue
o B) To ensure equitable distribution of resources
o C) To eliminate public debt
o D) To increase government control over the economy
o Correct Answer: B) To ensure equitable distribution of resources
73. What does the term 'monetary policy' refer to?
o A) Government spending policies
o B) Taxation policies
o C) Management of the money supply and interest rates
o D) Regulation of foreign exchange
o Correct Answer: C) Management of the money supply and interest rates
74. What is 'public finance' primarily concerned with?
 o A) The financing of private enterprises
o B) The management of government revenues and expenditures
o C) The regulation of financial markets
o D) The provision of private goods
o Correct Answer: B) The management of government revenues and
expenditures
75. What is the primary source of government revenue?
o A) Non-tax revenue
o B) Grants from international organizations
o C) Taxes
o D) Borrowing
o Correct Answer: C) Taxes
76. What does 'public expenditure' primarily refer to?
o A) Government spending on private enterprises
o B) Government spending on public services and goods
o C) Government revenue from taxes
o D) The budget surplus
o Correct Answer: B) Government spending on public services and goods
77. Which of the following is a function of a government budget?
o A) To regulate the financial sector
o B) To plan and control public expenditure
o C) To determine monetary policy
o D) To eliminate public debt
o Correct Answer: B) To plan and control public expenditure
78. What is 'capital expenditure'?
o A) Spending on day-to-day operations
o B) Spending on fixed assets and infrastructure
o C) Spending on public goods
o D) Spending on government salaries
o Correct Answer: B) Spending on fixed assets and infrastructure
79. Which of the following is NOT a characteristic of a good tax system?
o A) Certainty
o B) Equity
o C) Complexity
o D) Efficiency
o Correct Answer: C) Complexity
80. What does 'social welfare' imply in public finance?
o A) The government's obligation to maximize profits
o B) The government's obligation to ensure the well-being of its citizens
o C) The government's obligation to minimize taxes
o D) The government's obligation to control inflation
o Correct Answer: B) The government's obligation to ensure the well-being
of its citizens
81. What is 'economic stability'?
o A) A state of low inflation and high employment
o B) A state of constant economic growth
o C) A state of balanced government budgets
o D) A state of no government intervention in the economy
o Correct Answer: A) A state of low inflation and high employment
82. Which of the following is an example of a direct tax?
o A) Sales tax
o B) Service tax
o C) Income tax
o D) Value Added Tax
o Correct Answer: C) Income tax
83. What is the role of fiscal policy in managing the economy?
o A) To control inflation only
o B) To manage economic growth and stabilize the economy
o C) To regulate the banking sector
o D) To eliminate public debt
 o Correct Answer: B) To manage economic growth and stabilize the
economy
84. What is a 'subsidy'?
o A) A tax levied on goods
o B) A payment made by the government to support a sector
o C) A fee charged for public services
o D) A fine imposed for non-compliance
o Correct Answer: B) A payment made by the government to support a
sector
85. Which of the following is a limitation of fiscal policy?
o A) It is always effective
o B) It can be delayed by political processes
o C) It does not affect the economy
o D) It only affects short-term outcomes
o Correct Answer: B) It can be delayed by political processes
86. What is the primary goal of taxation?
o A) To control inflation
o B) To fund government expenditure
o C) To regulate the economy
o D) To redistribute wealth
o Correct Answer: B) To fund government expenditure
87. What does 'distributive justice' imply in public finance?
o A) Equal distribution of wealth
o B) Fair distribution of resources according to need
o C) Distribution based on contribution
o D) Distribution based on tax payments
o Correct Answer: B) Fair distribution of resources according to need
88. Which of the following is NOT a purpose of taxation?
o A) Revenue generation
o B) Redistribution of wealth
o C) Control of inflation
 o D) Promotion of economic growth
o Correct Answer: C) Control of inflation
89. What does 'marginal tax rate' refer to?
o A) The average tax rate paid
o B) The tax rate applied to the last dollar of income earned
o C) The total tax paid divided by total income
o D) The rate of tax on capital gains
o Correct Answer: B) The tax rate applied to the last dollar of income
earned
90. What is the relationship between government spending and economic growth?
o A) Increased spending always leads to growth
o B) Spending can stimulate growth if targeted effectively
o C) There is no relationship
o D) Reduced spending always leads to growth
o Correct Answer: B) Spending can stimulate growth if targeted effectively
91. What is a common indicator of fiscal health?
o A) High public debt
o B) Balanced budget
o C) High inflation
o D) Low government spending
o Correct Answer: B) Balanced budget
92. Which of the following is an example of an indirect tax?
o A) Corporate tax
o B) Capital gains tax
o C) Value Added Tax (VAT)
o D) Income tax
o Correct Answer: C) Value Added Tax (VAT)
93. What is 'tax evasion'?
o A) Minimizing tax liability through legal means
o B) Failing to pay taxes owed
 o C) Delaying tax payments
o D) Not filing a tax return
o Correct Answer: B) Failing to pay taxes owed
94. What does 'public finance' encompass?
o A) Private sector financial management
o B) Government revenue generation and expenditure
o C) International financial institutions
o D) Stock market regulation
o Correct Answer: B) Government revenue generation and expenditure
95. What is the impact of inflation on public finance?
o A) It decreases government revenue
o B) It increases the purchasing power of money
o C) It has no impact
o D) It simplifies budgeting processes
o Correct Answer: A) It decreases government revenue
96. What does the term 'government bonds' refer to?
o A) Loans made by private banks to the government
o B) Securities issued by the government to finance its operations
o C) Investments in private enterprises
o D) Shares in government-owned corporations
o Correct Answer: B) Securities issued by the government to finance its
operations
97. What is the primary challenge of public finance in developing countries?
o A) Low taxation rates
o B) High public debt
o C) Inefficient government spending
o D) All of the above
o Correct Answer: D) All of the above
98. Which of the following is a non-tax revenue source for the government?
o A) Sales tax
 o B) Property tax
o C) Fees and charges for services
o D) Income tax
o Correct Answer: C) Fees and charges for services
99. What is 'deficit financing'?
o A) Financing government spending through tax revenues
o B) Borrowing to cover a budget deficit
o C) Reducing government expenditures
o D) Increasing tax rates
o Correct Answer: B) Borrowing to cover a budget deficit
100. Which of the following is a potential consequence of high public debt? - A)
Increased public investment - B) Lower interest rates - C) Reduced government
spending on public services - D) Increased tax revenues - Correct Answer: C)
Reduced government spending on public services