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B Com Exam  >  B Com Tests  >  Public Finance  >  Test: Fiscal Policy- 5 - B Com MCQ

Test: Fiscal Policy- 5 - B Com MCQ


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10 Questions MCQ Test Public Finance - Test: Fiscal Policy- 5

Test: Fiscal Policy- 5 for B Com 2024 is part of Public Finance preparation. The Test: Fiscal Policy- 5 questions and answers have been prepared according to the B Com exam syllabus.The Test: Fiscal Policy- 5 MCQs are made for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Fiscal Policy- 5 below.
Solutions of Test: Fiscal Policy- 5 questions in English are available as part of our Public Finance for B Com & Test: Fiscal Policy- 5 solutions in Hindi for Public Finance course. Download more important topics, notes, lectures and mock test series for B Com Exam by signing up for free. Attempt Test: Fiscal Policy- 5 | 10 questions in 10 minutes | Mock test for B Com preparation | Free important questions MCQ to study Public Finance for B Com Exam | Download free PDF with solutions
Test: Fiscal Policy- 5 - Question 1
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What does public debt in India primarily include?

Detailed Solution for Test: Fiscal Policy- 5 - Question 1
Public debt in India primarily includes borrowings from sources such as market loans, special bearer bonds, treasury bills, special loans, and securities issued by the Reserve Bank. It also encompasses outstanding external debt. However, it excludes borrowings from small savings, provident funds, and other accounts. This debt contributes to the net liabilities of the government.
Test: Fiscal Policy- 5 - Question 2
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In industrialized countries like the U.S.A., what does government or public debt primarily refer to?

Detailed Solution for Test: Fiscal Policy- 5 - Question 2
In industrialized countries such as the U.S.A., government or public debt generally refers to the accumulated amount of money borrowed to finance past deficits. This relationship is more straightforward compared to India's usage of the term.
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Test: Fiscal Policy- 5 - Question 3
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Why might a government choose to raise loans to cover budget deficits?

Detailed Solution for Test: Fiscal Policy- 5 - Question 3
When faced with casual budget deficits, it might be appropriate for a government to raise loans instead of making immediate changes to the tax system. However, if budget deficits are regular, the government should consider adjusting taxation or reducing expenditures to address the deficit.
Test: Fiscal Policy- 5 - Question 4
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What is the key problem associated with a large public debt in terms of capital displacement?
Detailed Solution for Test: Fiscal Policy- 5 - Question 4
A significant problem with a large public debt is that it diverts society's limited capital from the productive private sector to the unproductive public sector. This leads to a shortage of capital for private investment, resulting in higher interest rates, reduced economic growth, and potentially lower living standards.
Test: Fiscal Policy- 5 - Question 5
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What is the debt-service ratio?
Detailed Solution for Test: Fiscal Policy- 5 - Question 5
The debt-service ratio is a measure that calculates a country's repayment obligations of principal and interest on its external debt for a specific year as a percentage of its exports of goods and services in the same year. It indicates the burden of external debt on a nation's ability to generate exports and, therefore, impacts its consumption possibilities.
Test: Fiscal Policy- 5 - Question 6
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How does public debt affect incentives to work and save?
Detailed Solution for Test: Fiscal Policy- 5 - Question 6
Public debt that requires interest payments funded by taxation might lead to reduced incentives to work and save. The additional tax burden can affect individuals' motivation to work harder or save money. Even if an individual is both a taxpayer and a bondholder, the overall distortion in incentives cannot be avoided.
Test: Fiscal Policy- 5 - Question 7
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How does a large public debt impact an economy's potential growth?
Detailed Solution for Test: Fiscal Policy- 5 - Question 7
A large public debt can negatively impact an economy's potential growth. By diverting capital from the productive private sector to the unproductive public sector, it can lead to higher interest rates, reduced private investment, and slower economic growth. This displacement of capital hampers the nation's ability to grow its potential output over time.
Test: Fiscal Policy- 5 - Question 8
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How does internal debt differ from external debt in terms of resource use?
Detailed Solution for Test: Fiscal Policy- 5 - Question 8
Internal debt does not involve using up the nation's real economic resources. Interest payments on domestically held debt lead to a transfer of income between taxpayers and bondholders within the same country. While external debt might lead to resource outflows if held by foreigners, internal debt does not involve depletion of real resources.
Test: Fiscal Policy- 5 - Question 9
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What is the consequence of a government repaying its debt with surplus budgets?
Detailed Solution for Test: Fiscal Policy- 5 - Question 9
Repaying the debt with surplus budgets has a contractionary impact on the economy. This means that economic activity could decline due to reduced government spending. Surplus budgets involve higher taxation and lower government expenditure, which can lead to a slowdown in economic growth.
Test: Fiscal Policy- 5 - Question 10
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What could be a key challenge in attempting to pay off a large public debt?
Detailed Solution for Test: Fiscal Policy- 5 - Question 10
Attempting to pay off a large public debt could have a significant challenge in terms of its negative impact on economic growth. The process of paying off debt might require surplus budgets, which in turn can result in reduced government spending and a contractionary effect on the economy. This trade-off between reducing debt and economic growth needs careful consideration.
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