UPSC Prelims PYQ › Economy › Public Finance & Budget

Public Finance & Budget — UPSC Prelims Economy previous year questions — page 2

162 solved previous year questions on Public Finance & Budget, papers from 1995 to 2022, drawn from UPSC CSE Prelims, UPSC CDS, UPPCS. Each carries the printed answer key and the explanation from the source compilation.

1. #41Practice set
   This theory maintains that attempts to stimulate an economy by increasing debt- 5. financed government spending will not be effective because consumers understand that the debt will eventually be paid in the form of future taxes. It argues that people will save based on their expectation of increased future taxes to pay off the debt. This reduces the aggregate demand thus offsetting the effects of increased government spending. Which of the following theories, coueclly explains above description?
   • ARicardian Equivalence
   • BKeynesian Economics Theory
   • CThe Pigou Effect
   • DMalthusian Economic Theory
   Answer: (A) Ricardian Equivalence
   Explanation

   Option a is the correct Equivalence maintains that government borrowing to increase the demand is offset by by people. People anticipate the current debt financed in future by increasing the tax rate, so saving in present itself. This reduces the offsetting the macroeconomic effects of spending

2. #42Practice set
   Consider the following statements regarding the types of Financial Grants provided by the Indian Parliament: 1. An Additional Grant is authorised for a particular service for which the amount granted in the budget turned out to be insufficient. 2. Token Grant involves simple reappropriation from one expenditure head to another in the already passed budget. 3. Excess Grants are voted upon by the Lok Sabha after the current financial year in which they are made.How many of the statements given above are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (B) Only two
   Explanation

   Option b is the correct l is incorrect: An Additional Grant for additional expenditure on a service that originally contemplated in the budget for that year not a part of it, but is found to be required 2 is correct: In Token Grant, there is no new funds. It is just an administrative procedure, Parliament reallocates and authorises use of funds head of expenditure to 3 is correct: Excess Grant involves ex post facto - i.e. when expenditure in sum granted in budget has already been made. Important Tips A Supplementary Grant is one where the amount for a particular service already part of the budget was found to be insufficient and now, Parliament needs to sanction extra funds for it

3. #43Practice set
   Which of the following is/are the recommendations of the Fifteenth Finance Commission? 1. Iuuemenl in the share of States in the central divisible pool from 32 percent to 42 percent. 2. Setting up of a separate non-lapsable fund for defence modernisation. 3. Devolution of grants from the central divisive tax pool to local governments.Select the correct answer using the code given below
   • A2 only
   • B2 and 3 only
   • C1 and 3 only
   • D1, 2 and 3 Ellr
   Answer: (B) 2 and 3 only
   Explanation

   Option b is the correct 1 is incorrect. The Fifteenth Finance to maintain the States' share in the of taxes to 41 for the five-year period starting 2 is correct. The Fifteenth Finance to set up a separate non-lapsable fund and internal security 3 is correct. The fifteenth finance granted Rs 4,36,361 crore from the central divisive to focal governments, both rural and urban, for

4. #44Practice set
   With reference to Gender Budgeting, consider the following statements: 1. Gender Budget Statement (GBS) was first introduced in the Indian Budget in 2018- 19. 2. It does not seek to create a separate budget but seeks to address specific needs of women. 3. Part A of Gender budget includes schemes with allocation for women.How many of the statements given above are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (B) Only two
   Explanation

   Option b is the correct l is incorrect. Gender Budget Statement first introduced in the Indian Budget in constitutes two parts- Part A reflects having allocation for women, and Part pro-women schemes, where at least of is for 2 is correct. Gender Budgeting does not seek a separate budget but seeks affirmative action specific needs of 3 is correct. The Gender Budget has two A includes schemes with allocation for ex: the widow pension scheme); and Part B with at least of funds for women (for ex: programme)

5. #45Practice set
   Which of the following are the in the success of zero-based budgeting? 1. It is a resource intensive process as il takes a lot more time efforl. 2. It promotes bias towards the short-term planning.Select the correct answer using the code given below
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (C) Both 1 and 2
   Explanation

   Option c is the correct based budgeting is method of budgeting which all are justified for each new l is correct: Zero-based budgeting is a resource intensive. It takes time and efforts to review and justify of the budget instead of modifying existing reviewing only new 2 is correct: It can reward short-term shifting resources toward areas of companies that revenue over the next calendar year or

6. #46Practice set
   Consider the following statements with respect to transfer from Reserve Bank of India: 1. RBI pays income tax on its earnings and profits. 2. Surplus transfer is included in the tax receipts of the government.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (D) Neither 1 nor 2
   Explanation

   Option dis the correct l is incorrect: The Reserve Bank of India provides exemption to RBI from paying any or any other tax including wealth 2 is incorrect: The surplus transfer is dividend for the government. So, it forms the part of non tax revenue of the government

7. #47Practice set
   Consider the following statements: 1. Counter-cyclical fiscal policy always deepens recessions and amplifies economic expansions. 2. During a boom in the economy, Pro cyclical fiscal policy aims at raising taxes and cutting public expenditure.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (D) Neither 1 nor 2
   Explanation

   Option dis the correct l is incorrect. Counter-cyclical fiscal to the steps taken by the government that go direction of the economic or business a recession or slowdown, the government and reduces taxes to create a demand that an economic 2 is incorrect. During a boom in the fiscal policy (not pro cyclical aims at raising taxes and cutting public expenditure

8. #48Practice set
   Which of the following components form part of capital expenditure of Central Government? 1. Loans made to the states 2. Interest payments made on loans 3. Investment in shares 4. Expenditure on social services sectorHow many of the statements given above are correct?
   • AOnly one
   • BOnly two
   • COnly three
   • DAll four
   Answer: (B) Only two
   Explanation

   Option b is the correct expenditure includes: Expenditure on the acquisition of land, building and machinery Loans Repayments by the Government Investment in shares Loans and advances by the central government to state and union territories, PSUs Interest payments on loans and expenditure on social sector services are included in the 'revenue expenditure'. Important Tips Capital expenditure includes those expenditure which result in the creation of physical or financial assets or reduction in financial liabilities

9. #49Practice set
   Consider the following 'accrual accounting': 1. It means revenue and expenses are recognized and recorded when they occur. 2. It portrays a more accurate portrait of a company's health. 3. It is the most commonly used method by publicly-traded companies.How many of the statements given above are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (C) All three
   Explanation

   Option c is the correct l is correct. Accrual accounting means expenses are recognized and recorded when they 2 is correct. Accrual accounling portrays a portrait of a company's health by including and accounts 3 is correct. The accrual method is the used method, especially by as it smooths out earnings over time. Important Tips Accrual accounting measures a company's performance and position by recognizing economic events regardless of when cash transactions occur

10. #50Practice set
    Whkh of the following statements are correct regarding deficit financing? 1. External grants are the best means to finance the deficit. 2. External borrowings are preferred over the internal borrowings due to 'crowding out effect'. SOCIAL 3. Internal borrowings to finance the deficit might hamper the level of investment in the economy.Select the correct answer using the code given below
    • A1 and 2 only
    • B2 and 3 only
    • C1 and 3 only
    • D1, 2 and 3
    Answer: (D) 1, 2 and 3
    Explanation

    Option d is the correct 1 is correct. External Grants are the best finance the deficit as they do not create any obligation neither interest payments nor any repayment. They 2 is correct. External borrowings are the internal borrowings due to 'crowding out the government goes on borrowing from the banks country, the liquidity with banks reduces. Statement 3 is correct. It is a corollary of the Statement 2. Less liquidity with banks leaves the private entities with limited money. This further leads to depression in the investment

11. #51Practice set
    Consider the following statements regarding the 'FRBM Act' and the associated changes: 1. The 'escape clause' allows the central government to deviate from fiscal deficit target under extraordinary circumstances. 2. Any deviation from the fiscal deficit target should not exceed in a year. 3. Recently, an independent fiscal council has been created for reviewing and evaluating the government's fiscal policies.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct. The escape clause has in the FRBM Act to allow the central deviate from fiscal deficit target under 2 is correct. FRBM amendments also the deviation from the stipulated fiscal deficit not exceed 0.5 percentage points in a 3 is incorrect. In 2017, the N.K. Singh the creation of an independent fiscal it has not been created yet

12. #52Practice set
    Which of the are presented afong with the lludget? 1. Finance bill 2. Appropriation bill 3. Macro economic framework statement. 4. Fiscal policy strategy staterncnt.How many of the statements given are correct?
    • AOnly one
    • BOnly two
    • COnly three
    • DAll four
    Answer: (D) All four
    Explanation

    Option d is the correct following documents are presented along with budget Annual financial statement Demands for grants Appropriation bill Finance bill Memorandum explaining the provisions in the finance bill Macro-economic framework statement Fiscal policy strategy statement Medium term fiscal policy statement Expenditure budget Receipt budget etc

13. #53Practice set
    Consider the following statements to the Financial Stability and Development Council (FSDC) and Goods and Services Tax ( GST) Council: 1. While FSDC is a statutory body, GST council is a constitutional body. 2. While state governments are part of GST council, they have no representation in FSDC. 3. While FSDC aims at strengthening inter regulatory coordination, GST council makes recommendations to the Union regarding indirect taxes.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option bis the correct l is incorrect. The Financial Stability Council (FSDC) was set up by the the apex level forum in December 201 is not a On the contrary, Article of the the formation of the GST Council by the administer govern GST. Thus, it is a constitutional 2 is correct. The Chairperson of FSDC is Minister of India. The members include: all Financial Sector Regulators (RBI, SEBI, IRDA), Finance Secretary, Department of (DEA), Secretary, Department of Financial and Chief Economic Adviser. In 2018, reconstituted FSDC to include: Minister of for the Department of Economic Secretary of the Department of Electronics Technology, Chairperson of the Insolvency Board of India (IBBI) and Revenue there is no representation of state the other hand, the Union Finance Minister of India is of the GST Council. Ministers nominated by governments are members of the GST 3 is correct. FSDC aims to s

14. #54Practice set
    Which of the following is/are the components expenditure in Union budget? l. All grants given to state governments 2. Grant given to union territories for creation of capital assets 3. Payment of subsidiesHow many of the statements given above are correct? equal employment to both men and women. approach and carbon neutral policies. at times of recession and high unemployment. spend more on public welfare schemes, than on capital formation
    • AOnly one
    • BOnly two
    • CAll three
    • DNone 42"
    Answer: (C) All three
    Explanation

    Option c is the correct l and 2 are correct. The Union government's comprises money spent on revenue account the amount spent on running its elaborate machinery. all grants given to state governments and These are treated as revenue expenditure, even of these grants may be used for the creation of 3 is correct. In India, the payment of also included in revenue expenditure. The pays subsidy under three major heads - fertilizer subsidy and fuel subsidy. Important Tips Revenue expenditures are the ongoing operating expenses, which are short-term expenses used to run the daily business operations. Revenue expenses related to existing assets include repairs and regular maintenance as well as repainting and renewal expenses. Revenue expenditures can be considered to be recurring expenses in contrast to the one-off nature of most capital

15. #55Practice set
    Consider the following statements regarding various public expenditures: 1. A public expenditure is progressive if it benefits only the lower income bracket people. 2. Providing subsidy on private savings is an example of regressive expenditure. 3. Proportional expenditure helps to reduce inequalities in distribution of income.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (A) Only one
    Explanation

    Option a is the correct l is incorrect. A public expenditure is the additional benefit provided by the grant or is larger in the case of low income people in the case of high income people. It does not it only benefits the lower income people. For example expenditure on social security like free medical aid, subsidized houses etc. are cases of It reduces income inequality existing in 2 is correct. A public expenditure is it benefits more to the higher income beneficiary income beneficiary. For example, subsidy on is regressive in nature because private savings will for high income group compared to low-income subsidy will thus benefit more to the higher It increases 3 is incorrect. Here, there is no change inequalities of income distribution. For all categories of employees,vere given a house 10 of their salaries, then it is a case of Important Tips The public expenditure is said to be p

16. #56Practice set
    Which of the following statements is correct regarding the Post Devolution Revenue Deficit Grant?
    • AIt is a way of providing grants to states for development related projects and schemes
    • BThese are provided to all states to meet their revenue deficits
    • CIt is provided to those states which incurred losses on account of better performance in population control measures
    • DThese are released in monthly instalments as per the recommendations of the Finance Commission
    Answer: (D) These are released in monthly instalments as per the recommendations of the Finance Commission
    Explanation

    Option d is the correct a is incorrect. Post Devolution Revenue are not provided for development related schemes. These are provided to states to meet the gap Accounts of the states post bis incorrect. The Finance Commission state's eligibility to receive this grants. This is based gap between assessment of revenue and expenditure State after taking into account the assessed the current financia 1 year. So, it is not provided to c is incorrect. The eligibility of States to grant and the quantum of grant was decided by based on the gap between assessment and expenditure of the State after taking the assessed d is correct. The grants are released in as per the recommendations of the to meet the gap in Revenue Accounts of post devolution Important Tips The Post Devolution Revenue Deficit Grants are provided to the States under Article 275 of the Constitution

17. #57Practice set
    Whkh of the following means are available for deficit financing in India? 1. External aid in the form of grants 2. Borrowing money from domes Lie market. 3. Printing of new money. 4. Ways and Means Advances 5. Borrowing money from foreign markets. PracticeSelect the correct code from the options given below
    • A1, 2, 3 and 4 only
    • B1, 3 and 4 only
    • C1, 2, 3 and 5 only
    • D1, 2, 3, 4 and 5
    Answer: (D) 1, 2, 3, 4 and 5
    Explanation

    Option d is the correct l is correct. External aids and grants a good means of fulfilling government's as it does not involve any interest 3 is correct. Printing Currency is the last the government in managing its deficit. But with it cannot go for the expenditures which are to in the foreign currency. Also printing fresh have other damaging effects on the economy 2 and 5 is correct. The Government to borrow either from its citizens or from instead of withdrawing cash balances held R.B.I. or borrowing from it. Borrowing domestically has no effect on the supply of money and prices because when government borrows, the by people is transferred to government with no the supply of money. However, the money supply when government borrows from foreign 4 is correct. Ways and Means Advances was introduced in 1997. These are temporary provided by the Reserve Bank of India (RBI) to and state govern

18. #58Practice set
    If there is a growth of revenue deficit as a percentage of fiscal deficit, what could this possibly indicate? 1. Creation of large number of new airports and roads by the Government. 2. Increase in the subsidies distributed in the country. 3. Lower net capital accumulation in the given period.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct 1 is incorrect - As Fiscal Deficit Capital Expenditure - Capital Receipts an increase in revenue deficit with fiscal constant will lead to decrease in capital will lead to less assets creation by the government lead to less infrastructure 2 is correct - Subsidies comes under expenditure of the government. It is a and forms the part of revenue deficit. So subsidies there will be increase in revenue 3 is correct - As seen from first statement, less capital expenditure due lo the net capital accumulation will be the given period. Net Capital accumulation is the i.e., capital expenditure - capital receipts which will reduce. Important Tips If the balance of total revenue receipts and total revenue expenditures turns out to be negative it is known as revenue deficit. The difference between total revenue and total expenditure of the government is termed as fiscal defici

19. #59Practice set
    Which of the following actions by the government would result in fiscal stimulus? 1. Widening of income tax slabs 2. Tax cuts on fuels 3. Restart of infrastructure projectsHow many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone H
    Answer: (C) All three
    Explanation

    Option c is the correct 1,2 and 3 are correct: A fiscal stimulus entails spending more from its own coffers or rates to put more money in the hands of demand in an economy stays weak for long, investing in new projects, unemployment rises, and consumer confidence wanes. This to retreat further into their shells. In Governments influence the economy by level and types of taxes, widening of income tax extent and composition of spending, and the form of borrowing. Tax cuts on fuel and restarting projects are other ways of boosting Important Tips A 'stimulus' is an attempt by policymakers to kick-start a sluggish economy through a package of measures. A monetary stimulus will see the central bank (Reserve Bank of India) expanding money supply or reducing the cost of money (interest rates), to spur consumer spending

20. #60Practice set
    Consider the following statements with respect to the differences between revenue account and capital account of the annual financial statement of the Government: 1. While cash grants-in-aid received from foreign countries are included in revenue receipts, loans raised from international organisations are part of capital receipts. 2. While defence expenditure is part of revenue expenditure, loans and advances by Lhe central government to state government is included in capital expenditure. 3. While revenue items form part of the trading and profit and loss account, the capital items help in the preparation of balance sheet.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (C) All three
    Explanation

    Option c is the correct l is correct: Revenue receipts are those do not lead to a claim on the government. They termed non-redeemable. Thus, cash foreign countries and international organisations in non-tax revenue receipts of government. are all those receipts of the government liability or reduce financial assets. Thus, loans foreign countries and international organisations of capital receipts. As it will have to be returned to from which they have been borrowed. Thus, 2 is correct: Revenue Expenditure is for purposes other than the creation of financial assets of the central government. It relates expenses incurred for the normal functioning of departments and various services, on debt incurred by the government, and to state governments and other parties (even of the grants may be meant for creation of assets). expenditure forms part of revenue Expenditure are expenditures of the wh

21. #61Practice set
    H is a strategy used by the government to counter boom or recession through fiscal measures. H is expansionary during recessions and contractionary during booms. Further balanced budget is not followed during the implementation of these policies. The above paragraph best describes which of the following policies used by the government?
    • AAutomatic stabilizers
    • BCounter cyclical fiscal policy
    • CExpansionary monetary policy
    • DPro cyclical fiscal policy
    Answer: (B) Counter cyclical fiscal policy
    Explanation

    Option b is the correct b is correct: A counter-cyclical fiscal policy strategy by the government to counter boom or fiscal measures. It works against the ongoing recession trend; thus, trying to stabilize the recession, government reduce taxes and to create demand and producing upswing in In the case of boom, taxes are increased and is reduced to slow down the demand. is not followed during the implementation of as balanced budget rules generally produce a pro cyclical fiscal policy. Important Tips Cyclicality of fiscal policy refers to the direction of change in government expenditure and taxes relative to economic/ output conditions J

22. #62Practice set
    With.reference to the zero-based budgeting, consider the following statements: 1. It considers current year's expectations without any regard to previous allocations in budget Practiceboo 2. It is ineffective in identifying inefficient functions as budgets are prepared fresh every year. 3. One of the drawbacks of this budgeting is it leads to duplication of efforts among organisational units. 4. It provides for quick budget adjustments during the year itself.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • COnly three
    • DAll four
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct: Zero base budgeting expectations, regardless of previous 2 is incorrect: Zero base budgeting examines and new programmes and activities. It also makes the managers analyse their functions, establish priorities them. This exercise helps in identifying inefficient functions within the area of responsibility. In resources are allocated from low priority programmes priority 3 is incorrect: ZBB system facilitates duplication of efforts among organisational units. activities are eliminated and some other 4 is correct: ZBB provides for quick during the year. If reveiwe falls slwrl in it offers the capability to quickly and goals and expectations to correspond to a affordable plan of operations. Important Tips Zero Base Budgeting (ZBB) is a management process whereby each governmental programme, regardless of whether it is new or existing programme must be j

23. #63Practice set
    With reference to the Medium-term Fiscal Policy Statement (MTFP), consider the following statements: 1. It is a statement presented to Parliament under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. 2. The statement is only an assessment of the fiscal balance of the central government.Which of the above statements is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (A) 1 only
    Explanation

    Option a is the correct l is correct. The Medium-term Fiscal (MTFP) is a statement presented to the Section of the Fiscal Responsibility and (FRBM) Act, 2003, which sets out targets for five specific fiscal indicators in GDP at market prices, namely, (i) Revenue Deficit revenue deficit, ( ) Fiscal Deficit, (iv) Tax to and (v) Total outstanding Debt as percentage of GDP end of the 2 is incorrect. It is not the Policy Statement (MTFP) but the statement that includes an assessment GDP growth rate, fiscal balance of the central the external sector balance of the economy. Important Tips Macro-economic framework statement is presented before Parliament at the time of Union Budget presentation. This is under Section of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003

24. #64Practice set
    With reference to Finance Commission and Goods and Service Tax Council, Consider the following statements:l. While Finance Commission is a constitutional body, GST Council is a statutory body formed by the GST Act, 2017. 2. While Finance commission deals with re-distribution of proceeds, GST Council deals with the slabs and rates of taxes on goods and services. 3. Both Finance Commission and GST Council are chaired by the Finance Secretary.How many of the slalements given above arc correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (A) Only one
    Explanation

    Option a is the correct differences between the two l is incorrect - The GST Council like is a constitutional body created under The GST Council has to discharge by the Constitution. The GST Council is take decision in the manner provided in clause (9) of the 2 is correct - It is the duty of the to make recommendations to the President the distribution between the Union and the States of proceeds of taxes which are to be, or may be, them and the allocation between the States of shares of such proceeds etc. It redistributes the mf om net proceeds of the revenue. The GST Council on the decides on the indirect taxes to be applied on and 3 is incorrect - The GST Council is chaired by Finance Minister. Important Tips The Finance Commission and GST Council are two bodies promoting fiscal federalism in the country. Finance Commission is a Constitutional body framed under Article 280 of the Indi

25. #65Practice set
    Which among the following is considered the best mode of financing the fiscal deficit?
    • ABorrowing from the market
    • BMonetisation of the Deficit
    • CExternal aid
    • DRaising the Tax Slabs k
    Answer: (C) External aid
    Explanation

    Option c is the correct a is incorrect: One of the methods of financing deficit is to borrow from the markets, banks and Institutions like LIC etc. From the given options not the best method of deficit b is incorrect: Monetizing deficit means government bonds in the primary market more money to finance the debt. This way of is inflationary and is bad for the health of bank. It also poses threat to the financial stability economy. Thus, it is not considered the best c is correct: External Aids are the as a means to fulfil a government's even if it is coming with soft interest. If coming without interest nothing could be d is incorrect: Income tax is a significant revenue in any country. By raising the tax slab more people would be left out of the incidence of this As a result, there will be a decrease in revenue income tax thus increasing fiscal deficit

26. #66Practice set
    In context of economy, what do you understand by the phrase 'Golden Rule of Public Finance'?
    • AIt states that over the economic cycle, the government should borrow only to invest and not to fund regular expenses
    • BIt states that there would be neither profi nor loss and all companies would earn the same rate of interest in an evenly rotating economy
    • CIt states that the nation as a whole cannot increase its wealth by increasing its stock of money
    • DIt means that behind every welfare check and each research grant lies the tax money of real people
    Answer: (A) It states that over the economic cycle, the government should borrow only to invest and not to fund regular expenses
    Explanation

    Option a is the correct Rule of Public Finance states that over the the government should borrow only to invest and fund current spending (current expenditure means day running expenses). In layman's term this means government borrows to finance investment so that it future the Rule, existing obligations and expenditures are financed through taxation, and not issuing new

27. #67Practice set
    In context of economy, high Fiscal Deficit can: I. Lead to cost push inflation. 2. Boost sluggish economy. 3. Lead to very low interest rates.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct. Fiscal deficit can lead to The government being a major player in for borrowings and doing away with the practice currency notes printed (since 1991) exerts an on interest rates. Higher interest rates cost, 11 passed on to consumers, to higher 2 is correct. fiscal deficit can boost a Moneyspentoncreation of productive investment and joh opportunities. Fiscal because of non-asset creation, such as generates purchasing power among the poor, in kickstarting a recessionary 3 is incorrect. High Fiscal Deficit raises rates in market. Funding of government market borrowings would not only induce rise rates, but the increased funding cost in turn contribute to the rise in fiscal deficit

28. #68Practice set
    Which of the following steps are taken by the government to reform the supply side of the economy? 1. Removal of retrospective tax on offshore indirect transfer 2. Approval of Production Linked Incentive Scheme for identified sectors CZI 3. Removal of distinction between manufacturing and service sector MSMEs 4. Penalties from delayed payments of License Fee or Spectrum Usage Charge (SUC) removed 5. FDI enhanced in Defence sector up to 100 per cent through the automatic routeSelect the correct answer using the codes given below
    • A1, 2, 3 and 4 only
    • B1, 2 and 3 only
    • C1, 3 and 5 only
    • D1, 2, 3 and 5 only
    Answer: (A) 1, 2, 3 and 4 only
    Explanation

    Option a is the correct distinguishing feature of India's economic response an emphasis on supply-side reforms llrnu a on demand wise Key supply side l is correct. Retrospective tax repealed tax certainty and foreign investment. Removal retrospective taxation on offshore indirect transfer assets signals the Government's resolve to ensure tax 2 is correct. Production Linked Incentive for 14 3 is correct. Removal of distinction and sector 4 is correct. Interest rates rationalized from delayed payments of License Fee or Charge (SUC) per cent FDI under automatic route permitted in 5 is incorrect. FDI enhanced in Defence sector 74 per cent (not through the automatic route to 100 per cent by government roule

29. #69Practice set
    Consider the following statements about Post Devolution Revenue Deficit Grants: 1. The word "Post Devolution Revenue Deficit Grant" is mentioned in Article 275 of the Indian Constitution. 2. It is duty of the Union Government to release this grant to all states, irrespective of their financial position. 3. The Department of Expenditure, under the Ministry of Finance, releases such amount to the respective state governments.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (A) Only one
    Explanation

    Option a is the correct 1 is incorrect: Although the central the Post Devolution Revenue Deficit Grants States under Article 275 of the Constitution, the devolution revenue deficit grant" is not mentioned 2 is incorrect: It is not mandatory for the to provide this grant to all states. Such grants released to those states based on the recommendation the finance commission. For example, recently the released 86,201 crores to 14 3 is correct: Finance commission has only i.e., il can only recommend. The ultimate with the union government and the Expenditure of finance) will amount to the respective state governments

30. #70Practice set
    With reference to the 'Fiscal marksmanship', which of the following statements is correct?
    • AIt is the difference between the budgetary expenditures and the government's revenue receipts
    • BIt refers to the accuracy of the government's forecast of fiscal parameters
    • CIt refers to the sharing of tax revenues by the Union government with the states as per the spirit of fiscal federalism
    • DIt is the deflationary effect of a progressive taxation system on a country's economy
    Answer: (B) It refers to the accuracy of the government's forecast of fiscal parameters
    Explanation

    F.xp) Option b is the correct marksmanship essentially refers to the accuracy government's forecast of fiscal parameters such expenditures and deficits etc. In other words, difference between what the government projected Budget and the actual figures a year later is large reflects poor fiscal marksmanship. It helps determine of the budget numbers of the government

31. #71Practice set
    Which of the following items are credited into the Consolidated Fund of India? 1. Revenues received by the Government of India 2. The loans obtained from foreign governments 3. Provident fund deposits 4. Remittances received from abroadSelect the correct answer using the code given below
    • A1 and 2 only
    • B1, 2 and 3 only
    • C2 and 4 only
    • D1, 2 and 4 only
    Answer: (A) 1 and 2 only
    Explanation

    Option a is the correct Fund of India is the most important of accounts. Revenues received by the expenses made by it, excluding the exceptional items, of the Consolidated l is correct: All revenues received by of India are credited into the of 2 is correct: All loans raised by the by issue of public notifications, (internal debt) and loans obtained from and international institutions (external credited into the Consolidated Fund of 3 and 4 are incorrect: All other public than those which are credited to the of India) received by or on behalf of the India shall be credited to the Public Account of includes provident fund deposits, judicial bank deposits, departmental deposits, so on. This account is operated by executive action; the payments from this account can be made appropriation. Such payments are mostly nature of banking transactions

32. #72Practice set
    Which of the following can be considered as the appropriate objectives of the Government's Budgeting? l. Provision of all types of goods and services to the citizens 2. Redistribution of income among the citizens J. Redudion ur expansion of aggregate demand in an economy 4. Disincentivizing the production of certain goodsHow many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • COnly three
    • DAll four
    Answer: (C) Only three
    Explanation

    Option c is the correct 1 is incorrect. Government budget decisions the provision of public goods such as roads, water, food etc., but its impact on private goods such as etc., is not as good as it is in public 2 is correct. An important function of the its impact on the distribution of wealth and The government sector affects the income of households by making transfers 3 is correct. The government may need to in income and employment. The overall level and prices in the economy depends upon of aggregate demand. In any period, the level of not be sufficient for full utilisation of labour and of the economy. The government thus needs to raise the aggregate demand. On the other may be times when demand exceeds available conditions of high employment and thus may give inflation. In such situations, restrictive conditions may to reduce 4 is correct Government through its especially through

33. #73Practice set
    With reference to budget of Union Government of India, which of the following are considered as the components of capital expenditure? 1. Investment in equities by the Government 2. Grants given to state governments for creation of assets 3. Loans given to the foreign nations 4. Investment on building of roads and portsSelect the correct answer using the code given below
    • A1, 2 and 4 only
    • B1, 3 and 4 only
    • C3 and 4 only
    • D1, 2, 3 and 4
    Answer: (B) 1, 3 and 4 only
    Explanation

    Option b is the correct 1 is correct. Capital expenditure is the money the acquisition of assets like land, buildings, as well as investment in shares or 2 is incorrect. All those expenditures that by the government for purposes other than of physical or financial assets are called Grants given to states including for assets is considered as revenue expenditure by the as it doesn't result in creating any assets for government. Other revenue expenditures are pensions, subsidies, interest 3 is correct. Loans given to foreign nations, or are treated as assets of the government because income in the form of interest. Additionally, of loan (unlike grants) are bound to repay hence it is considered as assets. Hence the loans 4 is correct. Government by spending creates an asset for the country. For investment on building roads and financial assets and supports economic activity in So, they are

34. #74Practice set
    Which of the following events may lead to fiscal drag in an economy? 1. Rise in income 2. Progressive Taxation 3. Increasing Repo rate 4. DeflationSelect the correct answer using the code given below
    • A1, 2 and 3 only
    • B1 and 2 only
    • C1, 3 and 4 only
    • D2 and 4 only
    Answer: (B) 1 and 2 only
    Explanation

    Option b is the correct drag is an economic term whereby inflation growth moves taxpayers into higher tax in effect increases government tax revenue increasing tax 1 and 2 are correct. Fiscal drag happens when moves tax payers into higher tax brackets, because of progressive taxation system. Inflation can cause a drag as the money left in the hands of people. The taxes reduces aggregate demand and consumer taxpayers as a larger share of their income now goes which leads to deflationary policies, or drag, on 3 is incorrect. Change in repo rates controls of money in the economic system. Increasing repo decrease the money supply in the system and lead to deflationary pressures. This would not Fiscal 4 is incorrect. Fiscal drag happens when not deflation) moves tax payers into higher tax of progressive taxation system. This results in of income going into taxes, reducing aggregate consumer s

35. #75Practice set
    With reference to Deficit financing, consider the following: The deficit by government necessarily leads to higher inflation in the country. Deficit financing leads to a situation where aggregate demand may exceeds aggregate supply in an economy. Which of the options given below is correct? rnm
    • ABoth A and R are correct and R is the correct explanation of A
    • BBoth A and R are correct but R is not the correct explanation of A
    • CA is true but R is false
    • DA is false but R is true
    Answer: (D) A is false but R is true
    Explanation

    Option d is the correct is incorrect. Deficit financing by the government raises the aggregate demand economy because of easy availability of money. It an inflationary situation as too much money is few goods. However, if the government policy is a manner that raises the total output of the economy the unutilised potential of the economy then may not occur. So, A is not correct because of is correct. As deficit budgeting infuses into the economy it leads to a situation of excess demand over aggregate supply

36. #76Practice set
    With reference to the Off-budget Borrowings, consider the following statements: 1. These are the loans that public sector undertakings take on behalf of the Union Government. 80. 2. These constitute one of the largest items in the fiscal deficit of the Government. 3. Repayment of principal and interest of such borrowings is done from the Central Government Budget.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct and 2 is incorrect: are loans that are taken not by the but by another public institution, like undertakings, which borrow on the directions central government. These also include the of bills and loans by the Centre. These off-budget borrowings because these loans payments are not part of fiscal deficit budget borrowings is not counted in the fiscal deficit. This helps keep the country's fiscal acceptable 3 is correct: Off-budget Borrowings financial liabilities that are raised by public for which repayment of entire principal is done from the Central Government Budget

37. #77Practice set
    Fiscal consolidation is one of the objectives of India's economic policy. In this context consider the following actions: 1. Improving tax revenue realization. 2. Getting more foreign loans 88. 3. Better targeting of government subsidies through Direct Benefit transfer.How many of the above given actions of government may help in fiscal consolidation?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct following actions of government may help in l is correct: Improved tax revenue way of increasing efficiency of tax administration tax avoidance, eliminating tax evasion, compliance etc. will help in Fiscal 2 is incorrect: While getting more loans receipts, it will not help in fiscal consolidation loan has to be repaid back along with interest. It the debt of the government. So, loans add more expenditure than they contribute to 3 is correct. Better targeting of and extending Direct Benefit Transfer scheme subsidies may help in Fiscal consolidation. Important Tips Fiscal consolidation is a reduction in the underlying fiscal deficit. So, by increasing revenues and decreasing expenditure, the Government can undertake fiscal consolidation

38. #78Practice set
    Consider the following statements with regards to Zero Based Budgeting: 1. It is a method of budgeting in which all expenses must be justified at the beginning of each financial year. 2. It allows the unspent money allocated to a particular ministry to be carried forward in the next financial year.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (A) 1 only
    Explanation

    Option a is the correct I is correct: The process of zero-based review and justification of each and expenditure in order to receive funding at of each financial 2 is incorrect: Under the traditional unspent money allocated to any ministry is allowed to be carried forward. In a no balances are carried forward, or there are expenses. Important Tips Zero-based Budget refers to planning and preparing the Budget from scratch or 'zero base'. It is different from a traditional Budget that is based on previous Budgets. The process of zero-based budgeting involves review and justification of each and every ministry's expenditure in order to receive funding at the beginning of each financial year

39. #79Practice set
    Consider the following statements about deficit financing, in the context of Budgeting in India: 1. Deficit financing may increase income inequalities in the economy. 2. Sustained deficit financing by the central government may lead to situation of inflation in the country. 3. State governments can finance their deficits by issuing the treasury bills.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct: Deficit financing can widen This is because of the fact that it creates power. But due to inelasticity in the supply goods, excess purchasing power of the public an incentive to price 2 is correct: The need for deficit financing the government needs to spend more money than it to earn in a particular period, to go for a of growth and development. This rise in may in turn increase aggregate demand pose the risk of inflation in the 3 is incorrect: Treasury Bills (T-Bills) can in market only by the central government and Lhe state governments. However, state governments Government securities (G-secs) to meet their targets by borrowing from the market

40. #80Practice set
    With reference to the Medium-Term Fiscal Policy Statement, consider the following statements: 1. It sets three-year rolling target for specific fiscal indicators in relation to GDP. 2. It is presented as part of General Budget by the Union government. 3. It is mandated by the Fiscal Responsibility and Budget Management Act, 2003.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (C) All three
    Explanation

    Option c is the correct l is correct. The Medium-term Fiscal sets out three-year rolling targets for indicators. Some of these indicators fiscal deficit as a percentage of revenue deficit as a percentage of ) primary deficit as a percentage of 2 is correct. The Medium-term Fiscal is presented as part of the General Budget. It to Parliament under Section of the und Budget Management (FRBM) 3 is correct. The Medium-term Fiscal is presented to Parliament as mandated by Responsibility and Budget Management Act, examines whether revenue expenditure can be revenue receipts on a sustainable basis and capital receipts including market being utilised. Important Tips Apart from Medium-term Fiscal Policy Statement, two other statements are presented as part of FRBM Act, 2003: The Fiscal Policy Strategy Statement sets the priorities of the government in the fiscal area, examining current policies an

More Economy topics