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This set of Public Economics Multiple Choice Questions & Answers (MCQs) focuses on Public Economics Set 3

Q1 | The Finance Commission is appointed in every
  • 3 year
  • 4 year
  • 5 year
  • 6 year
Q2 | The maximum effect of direct taxes is on
  • price of food
  • income
  • capital goods
  • consumer goods
Q3 | The Wanchoo Committee (1971) probed into
  • direct taxes
  • indirect taxes
  • agricultural holding tax
  • non‐tax revenue
Q4 | Modvat means
  • modified value added tax
  • moderate value added tax
  • modest value added tax
  • modern value added tax
Q5 | The revenue of the State Government is raised from the following sources except one,which is that?
  • land revenue
  • agricultural income tax
  • entertainment tax
  • expenditure tax
Q6 | The Finance Commission does all the following functions except one, which is that?
  • works out allocation of taxes in the divisible pool
  • looks into financial relations between the centre and the states
  • allocates grants ‐ in – aid to the states and union territories
  • assist the planning commission in making 5 year plans.
Q7 | Primary deficit means:
  • fiscal deficit‐ interest
  • revenue deficit‐interest payments
  • fiscal deficit+ revenue deficit
  • budgetary deficit
Q8 | Non‐Plan Grants are determined by
  • planning commission
  • finance commission
  • central government
  • state government
Q9 | Public Debt Management refers to
  • terms of new bonds
  • proportion of different components of public debt
  • maturity
  • all the above
Q10 | Public Expenditure increases
  • interest rate
  • employment
  • exports
  • imports
Q11 | Central Assistance for State and UT plan is a part of
  • plan expenditure
  • revenue expenditure
  • non‐plan expenditure
  • none of the above
Q12 | There is a view that reduced rates on income tax would lead to a significant rise in incometax revenue. This view has been attributed to
  • herbert simon
  • arthur laffer
  • robert lucas
  • j.b. say
Q13 | Functional Finance functions through
  • buying and selling
  • giving and taking
  • lending and borrowing
  • all the above
Q14 | The ideal system of public Finance is one where the net benefit is
  • maximum
  • minimum
  • zero
  • infinity
Q15 | The principle of Maximum Social Advantage is connected with
  • taxation
  • expenditure
  • public debt
  • both (a) and (b)
Q16 | Economic functions of the government are all the following EXCEPT to .
  • Control the price level of public goods.
  • Create a stable economic environment.
  • Increase the level of education.
  • Distribute income and wealth.
Q17 | Which of the following does NOT determine the nature of Public Economics?
  • Public economics studies the government and how its policies affect the economy.
  • Public economics is the study of government policy through the lens of economic efficiency and equity.
  • Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social
  • Public Economics studies the behaviour of private firms and is called economics of Priavte Sector.
Q18 | Which of the following describes the situation where all taxes and other revenues are less than expenditures during a given period?
  • Budget Deficit.
  • Budget Surplus.
  • Balanced Budget.
  • Public Debt.
Q19 | The Fundamental Theorem of Welfare Economics:
  • Shows that the allocation of resources generated by a complete system of perfectly competitive markets results in all consumers attaining the same utility level.
  • Refers to the biblical observation that "the poor ye shall always have with you.
  • Implies that no intervention in the workings of markets can be justified on efficiency grounds.
  • Holds that the allocation of resources generated by a complete system of perfectly competitive markets is Pareto efficient.
Q20 | If the economy is in an inflationary period, what action would Fiscal Policy most likely take?
  • Decrease the discount rate.
  • Increase taxes.
  • Decrease taxes.
  • Increase spending.
Q21 | Public goods are difficult for a private market to provide due to:
  • The free-rider problem.
  • The Tragedy of the Commons.
  • The public goods problem.
  • The rivalness problem.
Q22 | 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:
  • Over-consumed.
  • Over-supplied.
  • Subject to VAT.
  • Under-supplied.
Q23 | The optimum level of economic activity and associated pollution from society's point of view occurs where:
  • Marginal private benefit = Marginal private cost.
  • Marginal social benefit < Marginal social cost.
  • Marginal social benefit= Marginal social cost.
  • Marginal social benefit> Marginal social cost.
Q24 | If pollution by one firm results in higher production costs for another firm, this would be classified as a:
  • Negative production externality.
  • Negative consumption externality.
  • Marginal private cost of production.
  • Free Good.
Q25 | In the case of a negative externality, the social marginal cost will:
  • Be equal to private marginal cost.
  • Exceed the private marginal cost
  • Fall short of private marginal cost.
  • Bear no significant relation to private marginal cost.