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Government spending on public goods can lead to:- a)Exclusion of non-payers
- b)The free-rider problem
- c)Decreased efficiency in resource allocation
- d)Market failure
Correct answer is option 'B'. Can you explain this answer?
Government spending on public goods can lead to:
a)
Exclusion of non-payers
b)
The free-rider problem
c)
Decreased efficiency in resource allocation
d)
Market failure
|
Khadijah Musa answered |
The correct answer is option 'B': The free-rider problem.
Government spending on public goods can lead to the free-rider problem. Let's understand what the free-rider problem is and how it is related to government spending on public goods.
1. Free-rider problem:
The free-rider problem refers to a situation where individuals can benefit from a public good without contributing to its provision. In other words, individuals can enjoy the benefits of a public good without paying for it. This creates a problem because if everyone acts as a free rider, there may not be enough funding to provide and maintain the public good.
2. Government spending on public goods:
Public goods are goods and services that are non-excludable and non-rivalrous in consumption. Non-excludable means that individuals cannot be excluded from using the good, and non-rivalrous means that one person's consumption does not reduce the availability for others. Examples of public goods include national defense, street lighting, and public parks.
3. The free-rider problem and government spending on public goods:
When the government spends money on providing public goods, it typically uses tax revenue to fund these expenditures. However, since public goods are non-excludable, individuals who do not pay taxes can still benefit from these goods. This creates an incentive for individuals to avoid paying taxes and become free riders.
4. Consequences of the free-rider problem:
The free-rider problem can have several negative consequences:
- Inadequate provision: If too many individuals act as free riders and do not contribute to the funding of public goods, there may not be enough resources to provide and maintain these goods at an optimal level. This can lead to underinvestment in public goods and a reduction in their quality and availability.
- Inefficient allocation of resources: The free-rider problem can also lead to an inefficient allocation of resources. When individuals do not contribute to the funding of public goods, the burden of financing these goods falls on those who do pay taxes. This can create an imbalance and a misallocation of resources.
- Market failure: The free-rider problem is considered a form of market failure because it results in the underprovision of public goods. In a market economy, the private sector may not have sufficient incentives to provide public goods due to the free-rider problem. This is why government intervention is necessary to ensure the provision of public goods.
In conclusion, government spending on public goods can lead to the free-rider problem, where individuals can benefit from these goods without contributing to their provision. This can result in inadequate provision, inefficient allocation of resources, and market failure.
Government spending on public goods can lead to the free-rider problem. Let's understand what the free-rider problem is and how it is related to government spending on public goods.
1. Free-rider problem:
The free-rider problem refers to a situation where individuals can benefit from a public good without contributing to its provision. In other words, individuals can enjoy the benefits of a public good without paying for it. This creates a problem because if everyone acts as a free rider, there may not be enough funding to provide and maintain the public good.
2. Government spending on public goods:
Public goods are goods and services that are non-excludable and non-rivalrous in consumption. Non-excludable means that individuals cannot be excluded from using the good, and non-rivalrous means that one person's consumption does not reduce the availability for others. Examples of public goods include national defense, street lighting, and public parks.
3. The free-rider problem and government spending on public goods:
When the government spends money on providing public goods, it typically uses tax revenue to fund these expenditures. However, since public goods are non-excludable, individuals who do not pay taxes can still benefit from these goods. This creates an incentive for individuals to avoid paying taxes and become free riders.
4. Consequences of the free-rider problem:
The free-rider problem can have several negative consequences:
- Inadequate provision: If too many individuals act as free riders and do not contribute to the funding of public goods, there may not be enough resources to provide and maintain these goods at an optimal level. This can lead to underinvestment in public goods and a reduction in their quality and availability.
- Inefficient allocation of resources: The free-rider problem can also lead to an inefficient allocation of resources. When individuals do not contribute to the funding of public goods, the burden of financing these goods falls on those who do pay taxes. This can create an imbalance and a misallocation of resources.
- Market failure: The free-rider problem is considered a form of market failure because it results in the underprovision of public goods. In a market economy, the private sector may not have sufficient incentives to provide public goods due to the free-rider problem. This is why government intervention is necessary to ensure the provision of public goods.
In conclusion, government spending on public goods can lead to the free-rider problem, where individuals can benefit from these goods without contributing to their provision. This can result in inadequate provision, inefficient allocation of resources, and market failure.
Which source of government revenue is categorized as a direct tax?- a)Value-added tax (VAT)
- b)Corporate income tax
- c)Import duty
- d)Excise tax
Correct answer is option 'B'. Can you explain this answer?
Which source of government revenue is categorized as a direct tax?
a)
Value-added tax (VAT)
b)
Corporate income tax
c)
Import duty
d)
Excise tax
|
Deepak Iyer answered |
Direct taxes are levied directly on individuals or entities and cannot be transferred to others. Corporate income tax is a direct tax imposed on the income of companies.
Which of the following is an example of an external cost?- a)Education subsidies
- b)Pollution from a factory
- c)Infrastructure development
- d)Government grants to small businesses
Correct answer is option 'B'. Can you explain this answer?
Which of the following is an example of an external cost?
a)
Education subsidies
b)
Pollution from a factory
c)
Infrastructure development
d)
Government grants to small businesses
|
|
Deepak Iyer answered |
External costs, also known as negative externalities, are costs imposed on third parties who are not involved in the market transaction. Pollution from a factory is an example of an external cost because it negatively affects the environment and people living nearby.
Tax incidence refers to:- a)The legal requirement to pay taxes
- b)The allocation of tax revenues among government programs
- c)The burden of taxes on different individuals or groups
- d)The enforcement of tax laws by the government
Correct answer is option 'C'. Can you explain this answer?
Tax incidence refers to:
a)
The legal requirement to pay taxes
b)
The allocation of tax revenues among government programs
c)
The burden of taxes on different individuals or groups
d)
The enforcement of tax laws by the government
|
|
Deepak Iyer answered |
Tax incidence refers to how the burden of taxes is distributed among various individuals or groups in an economy. It examines who ultimately bears the economic burden of taxes, whether it is consumers, producers, or both.
Which of the following is NOT a challenge associated with revenue allocation in Nigeria?- a)Corruption
- b)Insufficient revenue sources
- c)Ethnic conflicts
- d)Effective resource management
Correct answer is option 'D'. Can you explain this answer?
Which of the following is NOT a challenge associated with revenue allocation in Nigeria?
a)
Corruption
b)
Insufficient revenue sources
c)
Ethnic conflicts
d)
Effective resource management
|
|
Deepak Iyer answered |
Effective resource management is not a challenge associated with revenue allocation in Nigeria. The other options represent significant challenges that Nigeria faces in relation to revenue allocation, including corruption, insufficient revenue sources, and ethnic conflicts, which can affect the fair distribution of revenue among the different levels of government.
In Nigeria, revenue allocation among the three tiers of government is based on the principle of:- a)Equality of states
- b)Fiscal federalism
- c)Population size
- d)Resource control
Correct answer is option 'B'. Can you explain this answer?
In Nigeria, revenue allocation among the three tiers of government is based on the principle of:
a)
Equality of states
b)
Fiscal federalism
c)
Population size
d)
Resource control
|
|
Deepak Iyer answered |
In Nigeria, revenue allocation among the three tiers of government (federal, state, and local) is based on the principle of fiscal federalism. This principle aims to ensure the equitable distribution of revenue and resources among the different levels of government, taking into account their respective responsibilities and needs.
Grants and aids received by the government are classified as:- a)Indirect taxes
- b)Voluntary contributions
- c)Capital expenditures
- d)Current transfers
Correct answer is option 'D'. Can you explain this answer?
Grants and aids received by the government are classified as:
a)
Indirect taxes
b)
Voluntary contributions
c)
Capital expenditures
d)
Current transfers
|
|
Deepak Iyer answered |
Grants and aids received by the government are classified as current transfers. Current transfers involve the transfer of funds between different sectors of the economy without any corresponding goods or services being provided in return.
What represents the opportunity cost of public expenditure?- a)The cost of borrowing funds for government projects
- b)The foregone alternative uses of the resources
- c)The administrative costs of implementing government programs
- d)The loss of tax revenue due to tax evasion
Correct answer is option 'B'. Can you explain this answer?
What represents the opportunity cost of public expenditure?
a)
The cost of borrowing funds for government projects
b)
The foregone alternative uses of the resources
c)
The administrative costs of implementing government programs
d)
The loss of tax revenue due to tax evasion
|
|
Deepak Iyer answered |
The foregone alternative uses of the resources. The opportunity cost of public expenditure refers to the value of the best alternative forgone when resources are allocated to a particular government project or program. It represents the benefits or uses that could have been obtained if those resources were allocated differently.
What is the main purpose of a budget deficit?- a)To increase public spending
- b)To reduce public spending
- c)To increase tax rates
- d)To bridge the gap between government expenditure and revenue
Correct answer is option 'D'. Can you explain this answer?
What is the main purpose of a budget deficit?
a)
To increase public spending
b)
To reduce public spending
c)
To increase tax rates
d)
To bridge the gap between government expenditure and revenue
|
|
Deepak Iyer answered |
A budget deficit occurs when government expenditure exceeds revenue. The purpose of a budget deficit is to bridge this gap by borrowing funds to cover the shortfall. It allows the government to finance its spending obligations even when revenue falls short.
The Laffer curve suggests that:- a)Higher tax rates always lead to higher tax revenues
- b)Lower tax rates always lead to lower tax revenues
- c)Tax revenues are maximized at an intermediate tax rate
- d)Tax revenues are independent of tax rates
Correct answer is option 'C'. Can you explain this answer?
The Laffer curve suggests that:
a)
Higher tax rates always lead to higher tax revenues
b)
Lower tax rates always lead to lower tax revenues
c)
Tax revenues are maximized at an intermediate tax rate
d)
Tax revenues are independent of tax rates
|
|
Deepak Iyer answered |
Tax revenues are maximized at an intermediate tax rate. The Laffer curve illustrates the relationship between tax rates and tax revenues. It suggests that there is an optimal tax rate where tax revenues are maximized. If tax rates are too low or too high, tax revenues may decrease.
Which of the following is an instrument of fiscal policy?- a)Exchange rate
- b)Interest rate
- c)Tax rate
- d)Consumer price index
Correct answer is option 'C'. Can you explain this answer?
Which of the following is an instrument of fiscal policy?
a)
Exchange rate
b)
Interest rate
c)
Tax rate
d)
Consumer price index
|
|
Deepak Iyer answered |
Fiscal policy refers to the use of government spending and taxation to influence the economy. The tax rate is an important instrument used in fiscal policy to affect the level of economic activity, investment, and consumption.
Which of the following is an example of an indirect tax?- a)Personal income tax
- b)Property tax
- c)Sales tax
- d)Estate tax
Correct answer is option 'C'. Can you explain this answer?
Which of the following is an example of an indirect tax?
a)
Personal income tax
b)
Property tax
c)
Sales tax
d)
Estate tax
|
|
Deepak Iyer answered |
Indirect taxes are taxes levied on the consumption or spending of goods and services. Sales tax is an example of an indirect tax as it is imposed on the sale of goods and services.
Which of the following sources contributes the highest percentage of revenue to the Nigerian government?- a)Personal income tax
- b)Value Added Tax (VAT)
- c)Oil revenue
- d)Corporate income tax
Correct answer is option 'C'. Can you explain this answer?
Which of the following sources contributes the highest percentage of revenue to the Nigerian government?
a)
Personal income tax
b)
Value Added Tax (VAT)
c)
Oil revenue
d)
Corporate income tax
|
|
Deepak Iyer answered |
In Nigeria, oil revenue contributes the highest percentage of revenue to the government. Nigeria is one of the largest oil-producing countries in the world, and oil exports play a significant role in the country's economy and government finances.
Which of the following is an example of a progressive tax?- a)Value Added Tax (VAT)
- b)Sales Tax
- c)Flat Tax
- d)Income Tax
Correct answer is option 'D'. Can you explain this answer?
Which of the following is an example of a progressive tax?
a)
Value Added Tax (VAT)
b)
Sales Tax
c)
Flat Tax
d)
Income Tax
|
|
Deepak Iyer answered |
Income tax is an example of a progressive tax. Progressive taxes impose a higher tax rate on individuals with higher incomes. As income increases, the percentage of income paid in taxes also increases.
Which of the following is a principle of taxation?- a)Randomness
- b)Inefficiency
- c)Equity
- d)Unpredictability
Correct answer is option 'C'. Can you explain this answer?
Which of the following is a principle of taxation?
a)
Randomness
b)
Inefficiency
c)
Equity
d)
Unpredictability
|
|
Deepak Iyer answered |
Equity is a principle of taxation that emphasizes fairness and the distribution of the tax burden. It implies that individuals with higher incomes or those who benefit more from public services should contribute a higher proportion of their income in taxes.
Which of the following is an example of an automatic stabilizer?- a)Expansionary fiscal policy
- b)Social security benefits
- c)Corporate tax cuts
- d)Tariffs on imported goods
Correct answer is option 'B'. Can you explain this answer?
Which of the following is an example of an automatic stabilizer?
a)
Expansionary fiscal policy
b)
Social security benefits
c)
Corporate tax cuts
d)
Tariffs on imported goods
|
|
Deepak Iyer answered |
Social security benefits. Automatic stabilizers are government policies or programs that automatically adjust with changes in economic conditions to stabilize the economy. Social security benefits, such as unemployment benefits or welfare payments, act as automatic stabilizers because they provide income support during economic downturns, helping to reduce the severity of recessions.
Public debts can be classified into which of the following categories?- a)Internal and external debts
- b)Short-term and long-term debts
- c)Consolidated and unconsolidated debts
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
Public debts can be classified into which of the following categories?
a)
Internal and external debts
b)
Short-term and long-term debts
c)
Consolidated and unconsolidated debts
d)
All of the above
|
|
Deepak Iyer answered |
Public debts can be classified based on various criteria. Internal and external debts refer to debts owed to domestic and foreign creditors, respectively. Short-term and long-term debts differentiate between debts with a maturity period of less than a year and debts with a longer repayment period. Consolidated and unconsolidated debts differentiate between debts that are included in the government's overall debt profile and those that are not.
When the demand for a good is relatively inelastic and the supply is relatively elastic, who bears the majority of the tax burden?- a)Buyers
- b)Sellers
- c)Producers and consumers share it equally
- d)Government
Correct answer is option 'B'. Can you explain this answer?
When the demand for a good is relatively inelastic and the supply is relatively elastic, who bears the majority of the tax burden?
a)
Buyers
b)
Sellers
c)
Producers and consumers share it equally
d)
Government
|
|
Deepak Iyer answered |
When the demand for a good is relatively inelastic (less responsive to price changes) and the supply is relatively elastic (more responsive to price changes), sellers bear the majority of the tax burden. This is because they are less able to pass on the tax to consumers in the form of higher prices.
Which of the following is NOT a component of the government budget?- a)Capital expenditure
- b)Current expenditure
- c)Revenue expenditure
- d)Foreign exchange reserves
Correct answer is option 'D'. Can you explain this answer?
Which of the following is NOT a component of the government budget?
a)
Capital expenditure
b)
Current expenditure
c)
Revenue expenditure
d)
Foreign exchange reserves
|
|
Deepak Iyer answered |
Foreign exchange reserves are not considered a component of the government budget. They represent a stock of foreign currencies held by a country's central bank and are separate from the budgetary allocations for government expenditures.
What is the main objective of public finance?- a)Allocating resources efficiently
- b)Maximizing government revenue
- c)Promoting income equality
- d)Controlling inflation
Correct answer is option 'A'. Can you explain this answer?
What is the main objective of public finance?
a)
Allocating resources efficiently
b)
Maximizing government revenue
c)
Promoting income equality
d)
Controlling inflation
|
|
Deepak Iyer answered |
The main objective of public finance is to ensure the efficient allocation of resources in the economy. This involves determining how resources should be distributed among different sectors and activities to maximize social welfare.
What is the primary purpose of resource control in Nigeria?- a)To ensure equal distribution of resources
- b)To empower the federal government
- c)To allow states to control their resources
- d)To promote foreign investment
Correct answer is option 'C'. Can you explain this answer?
What is the primary purpose of resource control in Nigeria?
a)
To ensure equal distribution of resources
b)
To empower the federal government
c)
To allow states to control their resources
d)
To promote foreign investment
|
|
Deepak Iyer answered |
The primary purpose of resource control in Nigeria is to grant states the authority to control and manage their natural resources. This approach gives states greater autonomy and allows them to benefit from the exploitation of resources within their jurisdictions.
Which source of government revenue is derived from ownership of land or property?- a)Taxes
- b)Royalties
- c)Rents
- d)Grants
Correct answer is option 'C'. Can you explain this answer?
Which source of government revenue is derived from ownership of land or property?
a)
Taxes
b)
Royalties
c)
Rents
d)
Grants
|
|
Deepak Iyer answered |
Rents are a source of government revenue derived from the ownership or leasing of land or property. Governments can generate income by charging rent for the use of state-owned land or properties.
In public finance, royalties are typically associated with:- a)Natural resources
- b)Public debt
- c)Social welfare programs
- d)Trade barriers
Correct answer is option 'A'. Can you explain this answer?
In public finance, royalties are typically associated with:
a)
Natural resources
b)
Public debt
c)
Social welfare programs
d)
Trade barriers
|
|
Deepak Iyer answered |
Royalties are payments made to the government for the use of natural resources such as oil, gas, or minerals. These payments are typically made by companies that extract or exploit these resources.
In order to reduce public debts, a government can undertake which of the following measures?- a)Increase tax rates
- b)Decrease government spending
- c)Attract foreign investments
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
In order to reduce public debts, a government can undertake which of the following measures?
a)
Increase tax rates
b)
Decrease government spending
c)
Attract foreign investments
d)
All of the above
|
|
Deepak Iyer answered |
To reduce public debts, a government can adopt a combination of measures. Increasing tax rates can generate additional revenue, while decreasing government spending helps to control expenditure. Attracting foreign investments can also provide an infusion of funds to help reduce the debt burden. A comprehensive approach that includes these measures can contribute to the reduction of public debts over time.
Which of the following sources of government revenue is considered non-tax revenue?- a)Corporate income tax
- b)Value-added tax (VAT)
- c)Personal income tax
- d)Dividends from state-owned enterprises
Correct answer is option 'D'. Can you explain this answer?
Which of the following sources of government revenue is considered non-tax revenue?
a)
Corporate income tax
b)
Value-added tax (VAT)
c)
Personal income tax
d)
Dividends from state-owned enterprises
|
|
Deepak Iyer answered |
Non-tax revenue refers to government revenue generated from sources other than taxes. Dividends from state-owned enterprises represent income earned by the government through its ownership of certain companies and are considered non-tax revenue.
The allocation of oil revenues among the various states in Nigeria is primarily based on:- a)Per capita income
- b)Population size
- c)Geographical location
- d)Education levels
Correct answer is option 'B'. Can you explain this answer?
The allocation of oil revenues among the various states in Nigeria is primarily based on:
a)
Per capita income
b)
Population size
c)
Geographical location
d)
Education levels
|
|
Deepak Iyer answered |
The allocation of oil revenues among the states in Nigeria is primarily based on their population size. This approach is intended to ensure that states with larger populations receive a proportionate share of the oil revenue, which is a significant source of income for the country.
Which of the following agencies is responsible for revenue allocation in Nigeria?- a)Central Bank of Nigeria (CBN)
- b)Nigerian National Petroleum Corporation (NNPC)
- c)Federal Inland Revenue Service (FIRS)
- d)Revenue Mobilization Allocation and Fiscal Commission (RMAFC)
Correct answer is option 'D'. Can you explain this answer?
Which of the following agencies is responsible for revenue allocation in Nigeria?
a)
Central Bank of Nigeria (CBN)
b)
Nigerian National Petroleum Corporation (NNPC)
c)
Federal Inland Revenue Service (FIRS)
d)
Revenue Mobilization Allocation and Fiscal Commission (RMAFC)
|
|
Deepak Iyer answered |
The RMAFC is the agency responsible for revenue allocation in Nigeria. It is tasked with the responsibility of determining the formula for the distribution of revenue among the three tiers of government, ensuring fairness and equity in the allocation process.
Which of the following is not an instrument of fiscal policy?- a)Government spending
- b)Taxation
- c)Monetary policy
- d)Public debt
Correct answer is option 'C'. Can you explain this answer?
Which of the following is not an instrument of fiscal policy?
a)
Government spending
b)
Taxation
c)
Monetary policy
d)
Public debt
|
|
Deepak Iyer answered |
Fiscal policy and monetary policy are two distinct tools used to manage the economy. While fiscal policy involves government spending and taxation, monetary policy is the responsibility of the central bank and involves controlling the money supply and interest rates.
The primary objective of fiscal policy is to:- a)Stabilize the economy
- b)Maximize government revenue
- c)Control population growth
- d)Promote international trade
Correct answer is option 'A'. Can you explain this answer?
The primary objective of fiscal policy is to:
a)
Stabilize the economy
b)
Maximize government revenue
c)
Control population growth
d)
Promote international trade
|
|
Deepak Iyer answered |
The primary objective of fiscal policy is to stabilize the economy by managing government spending and taxation. It aims to control aggregate demand, stabilize price levels, and promote economic growth and stability.
How can public expenditure positively affect the economy?- a)By reducing government debt
- b)By crowding out private investment
- c)By stimulating economic growth
- d)By increasing inflation
Correct answer is option 'C'. Can you explain this answer?
How can public expenditure positively affect the economy?
a)
By reducing government debt
b)
By crowding out private investment
c)
By stimulating economic growth
d)
By increasing inflation
|
|
Deepak Iyer answered |
By stimulating economic growth. Public expenditure can positively impact the economy by providing funds for infrastructure development, education, healthcare, and other productive investments. These investments can enhance productivity, attract private investment, create jobs, and contribute to overall economic growth.
Chapter doubts & questions for Public Finance - Economics for JAMB 2025 is part of JAMB exam preparation. The chapters have been prepared according to the JAMB exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for JAMB 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.
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Economics for JAMB
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