Q. What is the effect of a balanced budget on the economy?
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A.
Stimulates economic growth
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B.
Reduces public debt
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C.
Increases inflation
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D.
Has no effect
Solution
A balanced budget can stimulate economic growth by ensuring that government spending is aligned with revenues, promoting stability.
Correct Answer:
B
— Reduces public debt
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Q. What is the primary goal of expansionary fiscal policy?
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A.
To reduce inflation
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B.
To decrease unemployment
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C.
To increase taxes
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D.
To balance the budget
Solution
The primary goal of expansionary fiscal policy is to decrease unemployment by increasing government spending and/or cutting taxes.
Correct Answer:
B
— To decrease unemployment
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Q. What is the role of the Reserve Bank of India (RBI) in fiscal policy?
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A.
Setting tax rates
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B.
Managing government debt
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C.
Regulating foreign exchange
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D.
Controlling inflation through interest rates
Solution
The RBI plays a role in managing government debt by facilitating the issuance of government securities and managing liquidity.
Correct Answer:
B
— Managing government debt
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Q. Which fiscal policy action is likely to stimulate economic growth?
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A.
Increasing taxes
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B.
Decreasing government spending
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C.
Increasing government spending
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D.
Reducing public investment
Solution
Increasing government spending is likely to stimulate economic growth by boosting demand and creating jobs.
Correct Answer:
C
— Increasing government spending
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Q. Which of the following is a direct consequence of a budget surplus?
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A.
Increased public spending
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B.
Reduction in national debt
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C.
Higher taxes
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D.
Increased inflation
Solution
A budget surplus allows the government to reduce national debt, as it has excess funds after covering its expenditures.
Correct Answer:
B
— Reduction in national debt
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Q. Which of the following is an example of an automatic stabilizer?
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A.
Government infrastructure projects
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B.
Unemployment benefits
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C.
Tax cuts
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D.
Public investment programs
Solution
Unemployment benefits are an example of an automatic stabilizer, as they automatically increase during economic downturns to support individuals.
Correct Answer:
B
— Unemployment benefits
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