Question 1

Central Assistance for State and UT plan is a part of

Accepted Answer

The answer of Central Assistance for State and UT plan...

Question 2

There is a view that reduced rates on income tax would lead to a significant rise in income tax revenue. This view has been attributed to

Accepted Answer

This view is attributed to Arthur Laffer, known for the Laffer Curve, which illustrates the idea that there can be a tax rate at which government revenue is maximized, and beyond which tax cuts can actually increase total revenue.

Question 3

Functional Finance functions through

Accepted Answer

Functional Finance involves operations like buying and selling securities, giving and taking in terms of grants or taxes, and lending and borrowing, all of which are tools to manage the economy and achieve policy goals.

Question 4

The ideal system of public Finance is one where the net benefit is

Accepted Answer

The ideal system of public finance aims for a scenario where the net benefit is maximum, ensuring the most efficient allocation of resources and the greatest benefit to society.

Question 5

The principle of Maximum Social Advantage is connected with

Accepted Answer

The answer of The principle of Maximum Social Advantage is...

Question 6

Economic functions of the government are all the following EXCEPT to .

Accepted Answer

Education is not an economic function of the government.

Question 7

Which of the following does NOT determine the nature of Public Economics?

Accepted Answer

Public Economics focuses on government policies, economic efficiency, equity, and welfare economics, not on the behavior of private firms, which is the domain of private sector economics.

Question 8

The Fundamental Theorem of Welfare Economics:

Accepted Answer

The Fundamental Theorem of Welfare Economics states that any competitive equilibrium leads to a Pareto efficient allocation of resources, meaning that no one can be made better off without making someone else worse off.

Question 9

If the economy is in an inflationary period, what action would Fiscal Policy most likely take?

Accepted Answer

To combat inflation, fiscal policy would most likely involve increasing taxes. This action can help reduce consumer spending, which in turn can help lower inflation by decreasing the overall demand in the economy.

Question 10

Merit goods are those which, when consumed, generate positive external benefits. This is likely to mean that, in a free market economy, the good will be:

Accepted Answer

Merit goods are often under-supplied in a free market because the market does not take into account the positive externalities they generate, leading to lower production and consumption than is socially optimal.

Question 11

The optimum level of economic activity and associated pollution from society's point of view occurs where:

Accepted Answer

The optimum level of economic activity and associated pollution from society's point of view occurs where the Marginal Social Benefit (MSB) equals the Marginal Social Cost (MSC). This point reflects the most efficient allocation of resources, taking into account both the private costs and benefits of an activity and its external effects on society.

Question 12

If pollution by one firm results in higher production costs for another firm, this would be classified as a:

Accepted Answer

This scenario is an example of a negative production externality, where the actions of one firm adversely affect another firm's production costs without those costs being reflected in the market price of the good or service causing the externality.

Question 13

Printing of new currency notes and RBI borrowings by government is called:

Accepted Answer

Deficit financing refers to the methods governments use to finance their expenditures, exceeding their income. Printing new currency notes and borrowing from the Reserve Bank of India (RBI) are ways to manage or finance a budget deficit, hence the term "deficit financing."

Question 14

Which of the following is not a characteristic of a tax?

Accepted Answer

Taxes are compulsory payments made to the government without the expectation of a direct benefit or quid-pro-quo for the individual taxpayer, distinguishing them from fees or charges for specific services.

Question 15

Which of the following is not the broad component of Property Rights?

Accepted Answer

The right not to transfer the good to others is not considered a broad component of property rights. Property rights typically include the right to use the good, the right to earn income from it, and the right to transfer it to others, along with the right to enforce these rights.

Question 16

When property rights are settled by means of bargaining or negotiating terms, what has been applied?

Accepted Answer

The Coase theorem suggests that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.

Question 17

Following are some of examples of Transfer Expenditure EXCEPT:

Accepted Answer

Transfer expenditures are those where the government does not receive any goods or services in return. They include interest payments, unemployment allowances, and subsidies. Social infrastructure spending (like on education, health, and family welfare) involves the government receiving goods or services in return, making it a non-transfer expenditure.

Question 18

All other things being equal, a substantial cut in the rate of income tax in the short run is most likely to reduce:

Accepted Answer

A substantial cut in the rate of income tax increases disposable income, which can boost consumer spending and demand for goods and services, potentially leading to job creation and a reduction in unemployment.

Question 19

Which of the following is NOT the effect of taxation on production?

Accepted Answer

Effects on the distribution of income and wealth are more directly related to the outcomes of taxation rather than its impact on production. Taxation primarily influences production by affecting the ability and willingness to work, save, and invest (B and C), and by influencing how resources are allocated (D).

Question 20

A tax either on consumers or on producers:

Accepted Answer

Taxes on consumers or producers lead to inefficiencies in the market by creating a deadweight loss, which represents the loss of economic efficiency when the equilibrium outcome is not achievable or not achieved. This occurs because taxes distort the market equilibrium, leading to less trade and thus losses that are not compensated by gains elsewhere in the economy.

Quiz 1: Public Finance and Taxation Policy