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[2026] Which one of the following best describes the ‘Crowding Out Effect’ in the context of fiscal policy?
- (a) A situation where private investment increases due to increased Government spending
- (b) A situation where Government borrowing leads to higher interest rates, which reduces private investment
- (c) A situation where an increase in taxes leads to increased private sector investment
- (d) A situation where Government spending has no impact on aggregate demand
Correct Answer: (B) A situation where Government borrowing leads to higher interest rates, which reduces private investment
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[2025] Consider the following statements:
I. Capital receipts create a liability or cause a reduction in the assets of the Government.
II. Borrowings and disinvestment are capital receipts.
III. Interest received on loans creates a liability of the Government.
Which of the statements given above are correct?
- (a) I and II only
- (b) II and III only
- (c) I and III only
- (d) I, II and III
Correct Answer: (A) I and II only
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[2025] A country’s fiscal deficit stands at ₹50,000 crores. It is receiving ₹10,000 crores through non-debt creating capital receipts. The country’s interest liabilities are ₹1,500 crores. What is the gross primary deficit?
- (a) ₹48,500 crores
- (b) ₹51,500 crores
- (c) ₹58,500 crores
- (d) None of the above
Correct Answer: (A) ₹48,500 crores
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[2025] Suppose the revenue expenditure is ₹80,000 crores and the revenue receipts of the Government are ₹60,000 crores. The Government budget also shows borrowings of ₹10,000 crores and interest payments of ₹6,000 crores. Which of the following statements are correct?
I. Revenue deficit is ₹20,000 crores.
II. Fiscal deficit is ₹10,000 crores.
III. Primary deficit is ₹4,000 crores.
Select the correct answer using the code given below.
- (a) I and II only
- (b) II and III only
- (c) I and III only
- (d) I, II and III
Correct Answer: (D) I, II and III
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[2022] Consider the following statements :
1. Tight monetary policy of US Federal Reserve could lead to capital flight.
2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
3. Devaluation of domestic currency decreases the currency risk associated with ECBs.
Which of the statements given above are correct ?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Correct Answer: (A) 1 and 2 only
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[2022] With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct ?
1. Acquiring new technology is capital expenditure.
2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.
Select the correct answer using the code given below :
- (a) 1 only
- (b) Both 1 and 2
- (c) 2 only
- (d) Neither 1 nor 2
Correct Answer: (A) 1 only
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[2022] With reference to the Indian economy, consider the following statements :
1. A share of the household financial savings goes towards government borrowings.
2. Dated securities issued at market-related rates in auctions form a large component of internal debt.
Which of the above statements is/are correct ?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Correct Answer: (C) Both 1 and 2
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[2021] Which one of the following effects of the creation of black money in India has been the main cause of worry to the Government of India?
- (a) Diversion of resources to the purchase of real estate and investment in luxury housing
- (b) Investment in unproductive activities and purchase of precious stones, jewelry, gold, etc.
- (c) Large donations to political parties and the growth of regionalism
- (d) Loss of revenue to the State Exchequer due to tax evasion
Correct Answer: (D) Loss of revenue to the State Exchequer due to tax evasion
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[2021] Which among the following steps is most likely to be taken at the time of an economic recession?
- (a) Cut in tax rates accompanied by an increase in interest rates.
- (b) Increase in expenditure on public projects.
- (c) Increase in tax rates accompanied by a reduction of interest rates.
- (d) Reduction of expenditure on public projects.
Correct Answer: (B) Increase in expenditure on public projects.
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[2020] If another global financial crisis happens in the near future, which of the following
actions/policies are most likely to give some immunity to India?
(1) Not depending on short-term foreign borrowings
(2) Opening up to more foreign banks
(3) Maintaining full capital account convertibility
Select the correct answer using the code given below:
- (a) 1 only
- (b) 1 and 2 only
- (c) 3 only
- (d) 1, 2 and 3
Correct Answer: (A) 1 only
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[2020] Along with the Budget, the Finance Minister also places other documents before the Parliament which include ‘The Macro Economic Framework Statement’. The aforesaiddocument is presented because this is mandated by
- (a) Long standing parliamentary convention
- (b) Article 112 and Article 110(1) of the Constitution of India
- (c) Article 113 of the Constitution of India
- (d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003
Correct Answer: (D) Provisions of the Fiscal Responsibility and Budget Management Act, 2003
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[2020] With reference to the Indian economy after the 1991 economic liberalization, consider
the following statements:
1. Worker productivity (Rupee per worker at 2004-05 prices) increased in urban areas
while it decreased in rural areas.
2. The percentage share of rural areas in the workforce steadily increased.
3. In rural areas, the growth in non-farm economy increased.
4. The growth rate in rural employment decreased.
Which of the statements given above is/are correct?
- (a) 1 and 2 only
- (b) 3 and 4 only
- (c) 3 only
- (d) 1, 2 and 4 only
Correct Answer: (B) 3 and 4 only
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[2019] Consider the following statements:
1. Most of India’s external debt is owed by governmental entities.
2. All of India’s external debt is denominated in US dollars.
Which of the statements given above is / are correct?
- (a) 1 only
- (b) 2 only
- (c) Both 1 and 2
- (d) Neither 1 nor 2
Correct Answer: (D) Neither 1 nor 2
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[2019] In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India’s IT sector
2. Increasing the government expenditure
3. Remittances from Indians abroad
Select the correct answer using the code given below.
- (a) 1 only
- (b) 1 and 3 only
- (c) 2 only
- (d) 1, 2 and 3
Correct Answer: (B) 1 and 3 only
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[2018] Consider the following statements:
1.The Fiscal Responsibility and Budget Management (FRBM) Review Committee Report has recommended a debt to GDP ratio of 60% for the general (combined) government by 2023, comprising 40% for the Central Government and 20% for the State Governments.
2.The Central Government has domestic liabilities of 21% of GDP as compared to that of 49% of GDP of the State Governments.
3.As per the Constitution of India, it is mandatory for a State to take the Central Government’s consent for raising any loan if the former owes any outstanding liabilities to the latter.
Which of the statements given above is/are correct?
- (a) a)1 only
- (b) b)2 and 3 only
- (c) c)1 and 3 only
- (d) d)1, 2 and 3
Correct Answer: (C) c)1 and 3 only
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[2018] If a commodity is provided free to the public by the Government, then
- (a) the opportunity cost is zero.
- (b) the opportunity cost is ignored.
- (c) the opportunity cost is transferred from the consumers of the product to the tax-paying public.
- (d) the opportunity cost is transferred from the consumers of the product to the Government.
Correct Answer: (D) the opportunity cost is transferred from the consumers of the product to the Government.
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[2017] With reference to the ‘Prohibition of Benami Property Transactions Act, 1988
(PBPT Act)’, consider the following statements:
1. A property transaction is not treated as a benami transaction if the owner of the property
is not aware of the transaction.
2. Properties held benami are liable for confiscation by the Government.
3. The Act provides for three authorities for investigations but does not provide for any
appellate mechanism.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 2 only
- (c) 1 and 3 only
- (d) 2 and 3 only
Correct Answer: (B) 2 only
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[2016] There has been a persistent deficit budget year after year. Which action/actions of the following
can be taken by the Government to reduce the deficit?
1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Reducing import duty
Select the correct answer using the code given below.
- (a) 1 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2, 3 and 4
Correct Answer: (C) 1 and 3 only
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[2016] Which of the following is/are included in the capital budget of the Government of India?
1. Expenditure on acquisition of assets like roads, buildings, machinery, etc.
2. Loans received from foreign governments
3. Loans and advances granted to the States and Union Territories
Select the correct answer using the code given below.
- (a) 1 only
- (b) 2 and 3 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Correct Answer: (D) 1, 2 and 3
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[2015] There has been a persistent deficit budget year after year. Which of the following actions can be
taken by the government to reduce the deficit?
(1) Reducing revenue expenditure
(2) Introducing new welfare schemes
(3) Rationalizing subsidies
(4) Expanding industries
Select the correct answer using the code given below.
- (a) 1 and 3 only
- (b) 2 and 3 only
- (c) 1 only
- (d) 1, 2, 3 and 4
Correct Answer: (A) 1 and 3 only
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[2015] Convertability of rupee implies
- (a) being able to convert rupee notes into gold
- (b) allowing the value of rupee to be fixed by market forces
- (c) freely permitting the conversion of rupee to other currencies and vice versa
- (d) developing an international market for currencies in India
Correct Answer: (C) freely permitting the conversion of rupee to other currencies and vice versa
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[2014] With reference to Union Budget, which of the following is/are covered under Non-Plan Expenditure?
1. Defence expenditure
2. Interest payments
3. Salaries and pensions
4. Subsidies
Select the correct answer using the code given below:
- (a) 1 only
- (b) 2 and 3 only
- (c) 1, 2, 3 and 4
- (d) None of the above
Correct Answer: (C) 1, 2, 3 and 4
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[2013] In India, deficit financing is used for raising resources for
- (a) economic development
- (b) redemption of public debt
- (c) adjusting the balance of payments
- (d) reducing the foreign debt
Correct Answer: (A) economic development
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[2013] Which of the following constitute Capital Account?
1. Foreign Loans
2. Foreign Direct Investment
3. Private Remittances
4. Portfolio Investment
Select the correct answer using the codes given below.
- (a) 1, 2 and 3
- (b) 1, 2 and 4
- (c) 2, 3 and 4
- (d) 1, 3 and 4
Correct Answer: (B) 1, 2 and 4
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[2011] All revenues received by the Union Government by way of taxes and other receipts for the conduct of Government business are credited to the
- (a) Contingency Fund of India
- (b) Public Account
- (c) Consolidated Fund of India
- (d) Deposits and Advances Fund
Correct Answer: (C) Consolidated Fund of India
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[2011] A “closed economy” is an economy in which
- (a) the money supply is fully controlled
- (b) deficit financing takes place
- (c) only exports take place
- (d) neither exports nor imports take place
Correct Answer: (D) neither exports nor imports take place
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[2011] Consider the following action which the Government can take:
1. Devaluing the domestic currency.
2. Reduction in export subsidy.
3. Adopting suitable policies which attract greater FDI and more funds from FIIs. Which of the following action/actions can help in reducing the Current Account Deficit?
- (a) 1 and 2 only
- (b) 2 and 3 only
- (c) 3 only
- (d) 1 and 3 only
Correct Answer: (D) 1 and 3 only
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[2011] In the context of the Indian economy, what does the term “deficit financing” refer to?
- (a) Financing by the Central Government to cover the deficit in the current account of the balance of payments.
- (b) Financing by the Central Government to cover the fiscal deficit by borrowing from the market.
- (c) Financing by the State Governments to cover their revenue deficit.
- (d) Financing by private corporations to cover their financial losses.
Correct Answer: (B) Financing by the Central Government to cover the fiscal deficit by borrowing from the market.
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[2011] Which one of the following statements appropriately describes the “fiscal stimulus”?
- (a) It is a massive investment by the Government in manufacturing sector to ensure the supply of goods to meet demand surge caused by rapid economic growth.
- (b) It is an intense affirmative action of the Government to boost economic activity in the country.
- (c) It is the Government’s intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation.
- (d) It is an extreme affirmative action by the government to pursue its policy of financial inclusion.
Correct Answer: (B) It is an intense affirmative action of the Government to boost economic activity in the country.
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[2010] Consider the following actions by the Government:
1. Cutting the tax rates
2. Increasing the government spending
3. Abolishing the subsidies
In the context of economic recession, which of the above actions can be considered a part of the ‘fiscal stimulus’ package?
- (a) 1 and 2 only
- (b) 2 only
- (c) 1 and 3 only
- (d) 1,2 and 3
Correct Answer: (A) 1 and 2 only
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[2010] Which one of the following is responsible for the preparation and presentation of Union Budget of the Parliament?
- (a) Department of Revenue
- (b) Department of Economic Affairs
- (c) Department of Financial Services
- (d) Department of Expenditure
Correct Answer: (B) Department of Economic Affairs
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[2010] In the Context of governance, consider the following:
1. Encouraging Foreign Direct Investment inflows
2. Privatization of higher educational Institutions
3. Down-sizing of bureaucracy
4. Selling/offloading the shares of Public Sector Undertakings
Which of the above can be used as measures to control the fiscal deficit in India?
- (a) 1,2 and 3
- (b) 2,3 and 4
- (c) 1,2 and 4
- (d) 3 and 4
Correct Answer: (B) 2,3 and 4
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[2010] Which one of the following was not stipulated in the Fiscal Responsibility and Budget Management Act, 2003 ?
- (a) Elimination of revenue deficit by the end of fiscal year 2007-08
- (b) Non-borrowing by the central government from Reserve Bank of India except under certain circumstances
- (c) Elimination of primary deficit by the end of the fiscal year 2008-09
- (d) Fixing government guarantees in any financial year as a percentage of GDP
Correct Answer: (C) Elimination of primary deficit by the end of the fiscal year 2008-09