Question 1

The direct violation of Tax law is called:

Accepted Answer

Tax evasion refers to the illegal practices individuals or entities engage in to avoid paying their taxes. This includes underreporting income, inflating deductions, or hiding money and its interest in offshore accounts. In contrast, tax avoidance involves legally exploiting the tax system to reduce tax liabilities, such as through investments in tax-saving schemes.

Question 2

In the case of relatively elastic demand, the money burden of tax is on:

Accepted Answer

When demand is relatively elastic, consumers are more sensitive to price changes, meaning they are likely to reduce their quantity demanded significantly if the price rises. Therefore, sellers cannot easily pass the tax burden onto consumers without losing a significant number of sales. As a result, the seller bears more of the tax burden.

Question 3

Which of the following is NOT the subject matter of Public Finance?

Accepted Answer

Public Finance primarily deals with the assessment of government revenue and expenditure, public debt, and fiscal policy, focusing on how these affect the economy. Business administration, however, is concerned with the management of a company's resources, operations, and overall strategy, making it unrelated to the direct concerns of Public Finance.

Question 4

The most important aim of fiscal policy in a developing country is:

Accepted Answer

Economic development is the primary aim of fiscal policy in developing countries, focusing on accelerating the rate of economic growth and increasing employment opportunities.

Question 5

.If a good is a public good, then:

Accepted Answer

Public goods are characterized by non-excludability, meaning that it is not possible to exclude individuals from consumption who do not pay for the good.

Question 6

A market failure can best be defined as a situation where:

Accepted Answer

Market failure occurs when the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss.

Question 7

The "Tragedy of the Commons" is:

Accepted Answer

The "Tragedy of the Commons" refers to a situation where individual users, acting independently according to their own self-interest, deplete or spoil shared resources, leading to the exhaustion of these resources.

Question 8

A tax that takes away a higher proportion of one's income as the income rises is termed as a:

Accepted Answer

A progressive tax is designed to take a larger percentage of income from individuals or entities as their income increases, making it a more equitable form of taxation for different income levels.

Question 9

Loans taken by the government for purpose of war, earthquakes for covering budget deficit are:

Accepted Answer

Unproductive debts are those that do not generate a direct economic return. Loans taken for purposes like war or natural disasters, such as earthquakes, or to cover a budget deficit, fall into this category because they are typically used for immediate needs rather than for investments that could generate future income.

Question 10

The incidence of tax refers to:

Accepted Answer

The incidence of tax refers to who ultimately bears the burden of the tax, meaning who actually pays the tax after all economic adjustments have been made, such as changes in prices or wages.

Question 11

In the case of direct tax, impact and incidence are on:

Accepted Answer

In the case of direct taxes, both the impact and incidence fall on the same person, as these taxes are levied directly on the income or wealth of individuals or organizations.

Quiz 1: Public Finance and Taxation Policy