Question 1

Fiscal policy is the policy of:

Accepted Answer

Fiscal policy is the use of government spending and taxation to influence the economy. It is a policy tool of the government, not of central banks like the RBI (Reserve Bank of India) or development banks like NABARD (National Bank for Agriculture and Rural Development).

Question 2

The principle of judging fiscal measures by the way they work is called:

Accepted Answer

The principle of judging fiscal measures by the way they work, rather than by traditional notions of balancing budgets, is known as functional finance. This approach focuses on the outcomes of fiscal policies, such as their impact on employment and inflation, rather than merely aiming to balance income and expenditure.

Question 3

When individuals with unequal tax paying ability should be taxed unequally in order to equalise sacrifice is called:

Accepted Answer

The answer of When individuals with unequal tax paying ability...

Question 4

The following is an example of direct taxes:

Accepted Answer

Income tax is a direct tax because it is levied directly on the income of individuals and businesses.

Question 5

If the rate of tax falls with an increase in income, it is called:

Accepted Answer

A regressive tax system is one where the rate of tax decreases as the taxable amount (income or assets) increases. This is in contrast to a progressive tax, where the rate increases with an increase in income.

Question 6

Which is the method of financial adjustment between Centre and States?

Accepted Answer

The answer of Which is the method of financial adjustment...

Question 7

Who suggested an expenditure tax as an alternative to income tax?

Accepted Answer

Nicholas Kaldor suggested an expenditure tax as an alternative to income tax, arguing that it would be more equitable and efficient.

Question 8

Budget is an instrument of:

Accepted Answer

A budget is primarily an instrument of fiscal policy, as it involves government spending and revenue collection to influence the economy.

Question 9

The concept of functional finance was developed by:

Accepted Answer

Abba P. Lerner developed the concept of functional finance, which emphasizes achieving full employment and price stability over balancing budgets.

Question 10

The modern state is:

Accepted Answer

The modern state is often characterized as a welfare state, which implies that the government plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those unable to avail themselves of the minimal provisions for a good life.

Question 11

According to Musgrave the major functions of public finance is:

Accepted Answer

Musgrave identified three major functions of public finance: allocative function, distributive function, and stabilization function, hence all the options are correct.

Question 12

Who is the author of the book "The Theory of Public Finance"?

Accepted Answer

Richard A. Musgrave is the author of "The Theory of Public Finance: A Study in Public Economy," which is a seminal work in the field of public finance.

Question 13

A criterion by which public goods are distinguished from private goods:

Accepted Answer

The exclusion principle distinguishes public goods from private goods, as public goods are non-excludable, meaning it's not possible to prevent anyone from using them, unlike private goods where the exclusion principle applies.

Question 14

Who was the first to recommend the adoption of an expenditure tax for India?

Accepted Answer

N. Kaldor was the first to recommend the adoption of an expenditure tax for India, as part of his tax reform proposals to improve the Indian tax system.

Question 15

The controlling authority of Government expenditure is:

Accepted Answer

The Ministry of Finance is the primary authority responsible for the government's expenditure, overseeing the national budget, taxation, and financial policies.

Question 16

The idea of 'Democratic Decentralization' in India was popularized by:

Accepted Answer

The answer of The idea of 'Democratic Decentralization' in India...

Question 17

Which one of the following is the most acceptable theory of taxation:

Accepted Answer

The "ability to pay theory" is the most widely accepted theory of taxation, emphasizing that taxes should be levied according to an individual's or entity's capacity to pay. This principle aims for equity and fairness in the tax system, ensuring that those with greater financial resources contribute more to the public coffers than those with less.

Question 18

The incidence of tax refers to:

Accepted Answer

The incidence of tax refers to who ultimately bears the financial burden of the tax, meaning who ends up paying for it. This can differ from who the tax is initially levied upon, as the burden can be shifted through price changes.

Question 19

The theory of fiscal policy derives from

Accepted Answer

The theory of fiscal policy derives from the principle of sound finance, which states that the government should budget for a surplus in good times and a deficit in bad times.

Question 20

The most important source of public revenue is

Accepted Answer

Taxes are the most important source of public revenue for governments. They are compulsory contributions imposed by governments on individuals and businesses to fund public services and infrastructure. Unlike fees, commercial revenue, or fines, taxes are not paid in exchange for a specific service or penalty but are collected to support the general functions and responsibilities of the government.

Quiz 1: Public Finance and Taxation Policy