Economics · General Awareness

Fiscal Policy and Government Budget

1,089 Questions

Fiscal policy and government budget questions evaluate your knowledge of economic stabilization, public expenditure, and deficit management. These topics are crucial for civil services and banking examinations. Practice these questions to master macroeconomic principles.

Budget deficitsFiscal policy toolsGovernment expenditureExpansionary fiscal policyPublic debt benefits

Fiscal Policy and Government Budget Questions

Multiple choice

What is the most important item of expenditure of the Union Government in India?

  1. Subsidies

  2. Defence

  3. Wages and salaries

  4. Interest payments
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

For the Indian Union Government, interest payments on accumulated debt have historically been the largest single expenditure category, exceeding defense and subsidies. This reflects decades of fiscal deficit financing. While wages and subsidies are significant, interest payments dominate the budget.

Multiple choice

Public Debt constitutes

  1. external public debt

  2. external liabilities and external commercial borrowings

  3. national debt and other miscellaneous debt for which the government is ultimately responsible

  4. both (2) and (3)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Public debt comprehensively includes external liabilities, external commercial borrowings, national (internal) debt, and miscellaneous obligations for which the government is ultimately responsible. It's not just external debt (option A) or the combinations in B and C separately - it's all of these together.

Multiple choice

Of the following which is not a source of public revenue?

  1. Public borrowing

  2. Taxes

  3. Subsidies

  4. Surpluses of public undertakings
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Public revenue refers to income sources for the government, including taxes, public borrowing, and surpluses from public undertakings. Subsidies are government expenditures (payments made to support specific sectors or populations), not revenue sources. Subsidies represent outflows from the government budget, not inflows.

Multiple choice

Fiscal Deficit is equal to

  1. Current Income - Current Expenditure

  2. Capital Receipts - Capital Payments

  3. Total Income - Total Expenditure

  4. Current Income - (Current Expenditure + Capital Expenditure)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Fiscal deficit is defined as Total Revenue Income minus Total Revenue Expenditure, but this is a simplified version. More precisely, fiscal deficit = (Current Income + Capital Receipts) - (Current Expenditure + Capital Expenditure). Option D represents this concept correctly by showing that current income must cover both current and capital expenditures. Fiscal deficit indicates the total borrowing requirements of the government.

Multiple choice

In the budget figures of the Government of India, interest payments, subsidies, pensions, social services and the like are parts of the

  1. Plan Expenditure

  2. State Government Expenditure

  3. Public Debt in the form of Capital Expenditure

  4. Non - plan Expenditure
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Non-plan expenditure includes ongoing government obligations like interest payments on debt, subsidies, pensions, and social services that are not part of specific five-year development plans. Plan expenditure is tied to developmental programs outlined in Five Year Plans, while non-plan expenditure represents committed, routine expenses of running the government.

Multiple choice

Directions: Choose the correct option for the given question.

Increase in net RBI credit for Central Government represents

  1. Budgetary Deficit

  2. Revenue Deficit

  3. Fiscal Deficit

  4. Monetised Deficit
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Monetised Deficit (also called Monetised Fiscal Deficit) occurs when the RBI extends credit to the government. Increase in net RBI credit for the Central Government represents monetised deficit, where the government's borrowing is financed by printing money.

Multiple choice

Directions: Choose the correct option for the given question.

Plan expenditure in India is met by

  1. Internal debt and other resources

  2. Assistance from Aid India Club

  3. Assistance from IMF

  4. Assistance from OECD countries
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Plan expenditure in India (expenditure on development schemes and five-year plans) is primarily met through internal debt and other government resources. This includes market borrowing, small savings, and other internal sources, rather than external aid.

Multiple choice

Co-relate the following definitions and their explanations A. Fiscal Deficit I. Difference between revenue income and revenue expenditure in a year B. Budget Deficit II. The total amount borrowed by the govt. in a year C. Revenue Deficit III. The amount borrowed by the govt. from reserve bank of India in a year D. Monetary Deficit IV. Total amount to be borrowed in a year thought internal borrowing from RBI as well as from foreign courtiers

  1. A.I, B.II, C.IV, D.III

  2. A.III, B.II, C.IV, D.I,

  3. A.IV, B.I, C.III, D.II,

  4. A.II.B.III.C.I
Reveal answer Fill a bubble to check yourself
D Correct answer
Multiple choice

By which of the following Bills does the Government propose collection of revenues for a year?

  1. Economic Bill

  2. Finance Bill

  3. Supplementary Bill

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Finance Bill is introduced in Parliament every year alongside the Budget to propose tax measures and revenue collection for the upcoming financial year. It gives effect to the financial proposals of the government. Other bills like Economic Bills or Supplementary Bills serve different purposes.

Multiple choice

Directions: Choose the correct option for the given question.

Fiscal deficit as a percentage of GDP was 4·0% in 2004-05 which sliped down in 2008-09 (Budget Estimates) to

  1. 3.2%

  2. 2.8%

  3. 2.5%

  4. 2.1%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The fiscal deficit as a percentage of GDP was 4.0% in 2004-05 and declined to 2.5% in 2008-09 (Budget Estimates). This reflects the fiscal consolidation efforts during that period. Option C is correct. Note: the question has a typo with 'sliped' but the content is clear.

Multiple choice

In the subject of budget, the demands for grants are arranaged in which manner?

  1. Ministry wise

  2. Department wise

  3. State wise

  4. Topic wise
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In the budget, demands for grants are arranged ministry-wise, with each ministry presenting its demands for various departments under it. This arrangement ensures systematic consideration of expenditure proposals. The Lok Sabha considers these ministry-wise demands during the budget discussion phase, and each demand is voted upon separately.