Chapter MCQ Test 2 — Public Finance
10 Questions • 12 min • Chapter MCQ
12:00
Question 1 of 10
A government spends ₹40 lakh crore but collects only ₹32 lakh crore in receipts. Its budget is in:
Deficit (must borrow the gap)
Surplus
Balance
Profit
Explanation: Expenditure exceeding receipts is a deficit, financed by borrowing — the fiscal deficit.
Question 2 of 10
Direct taxes like income tax help reduce inequality mainly because they are usually:
Progressive (the rich pay a higher rate)
Regressive
Equal for all
Shifted to the poor
Explanation: Progressive rates take a larger share from higher incomes, narrowing the gap between rich and poor.
Question 3 of 10
GST charged on a chocolate bar is paid to the government by the shop but finally borne by the:
Consumer who buys it
Shopkeeper alone
Manufacturer only
Government
Explanation: An indirect tax's burden is shifted forward to the final consumer through the price.
Question 4 of 10
Indirect taxes are sometimes called regressive because they:
Take the same amount from rich and poor buyers
Fall only on the rich
Are never collected
Reduce all prices
Explanation: Since the tax per unit is the same for everyone, it is a bigger share of a poor person's income.
Question 5 of 10
Capital expenditure is considered more developmental than revenue expenditure because it:
Creates lasting assets like roads and schools
Pays only salaries
Creates no assets
Is borrowed money
Explanation: Capital spending builds productive assets that benefit the economy for years, unlike day-to-day revenue spending.
Question 6 of 10
A very high public debt strains future budgets chiefly through rising:
Interest payments
Tax refunds
Subsidies to the rich
Capital assets
Explanation: Servicing a large debt means heavy interest outgo, leaving less money for development.
Question 7 of 10
The government taxes cigarettes and alcohol heavily. Besides revenue, this shows taxes can be used to:
Discourage harmful consumption
Increase pollution
Hide the budget
Remove all taxes
Explanation: Higher taxes on harmful goods raise their price and discourage their use — a policy use of taxation.
Question 8 of 10
Profits earned by a government-owned company are part of the government's:
Non-tax revenue
Tax revenue
Public debt
Capital expenditure
Explanation: Earnings of public enterprises are non-tax revenue, not a compulsory tax.
Question 9 of 10
Borrowing from the public and banks within the country adds to the government's:
Internal debt
External debt
Tax revenue
Surplus
Explanation: Debt raised from sources inside the country is internal debt.
Question 10 of 10
Through the budget, the government can reduce inequality by taxing the rich more and:
Spending on welfare schemes for the poor
Cutting all spending
Banning taxes
Borrowing forever
Explanation: Progressive taxes plus pro-poor spending redistribute income, a key objective of public finance.