Functions And Scope Of Government In Economic


20 Questions MCQ Test Economy Traditional for UPSC (Civil Services) Prelims | Functions And Scope Of Government In Economic


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QUESTION: 1

What among the following is NOT an example of 'public goods'?

Solution:

A commodity or service that is provided without profit to all members of a society, either by the government or by a private individual or organization is a public good. So from all these options, a car is not a public good.

QUESTION: 2

What among the following is NOT an example of 'private goods'?

Solution:

Private goods are goods that must be bought in order to be consumed and whose ownership is restricted to the group or individual that purchased the good. Private goods are different from public goods, which are available to everyone regardless of income levels. So military is not a private good.

QUESTION: 3

The function of a government to provide goods that cannot normally be provided by market mechanisms between individual customers and producers, is known as:

Solution:

The allocation function is that part of government tax and expenditure policy which is concerned with influencing the provision of goods and services in the economy. 4.  This means creating conditions to promote competition among producers, as well as the welfare of consumers.

QUESTION: 4

The function of a government to fairly share the public's resources is known as

Solution:

The government through its tax and expenditure policies attempts to bring out income redistribution in the society that is fair to all. The government transfers payments from one citizen to others through taxation policy. Those with higher income paying higher taxes.

QUESTION: 5

The function of a government by which it seeks to seek a balance of employment, demand-supply, and inflation, is known as:

Solution:

The correct option is Option C. 
Stabilization policy is a strategy enacted by a government or its central bank that is aimed at maintaining a healthy level of economic growth and minimal price changes. In the language of business news, a stabilization policy is designed to prevent the economy from excessive "over-heating" or "slowing down."

QUESTION: 6

The Government Budget consists of which main component/s?

Solution:

Revenue budget comprises of those items that neither leads to a change in the assets nor a change in the liabilities of the government. Capital budget comprises of those items that lead to a change in either the assets or liabilities of the government. It consists of revenue receipts and revenue expenditure.

QUESTION: 7

Loans raised by the government from the public are known as:

Solution:

The capital receipts are loans raised by the Government from the general public. The loan thus raised is termed as market loans, or borrowings by the Government from the Reserve Bank of India and other parties through the sale of Treasury Bills.

QUESTION: 8

Whenever the government spends more than it collects through revenue, the resulting imbalance is known as :

Solution:

 A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals.

QUESTION: 9

The idea that government's fiscal policy can be used to stabilize the level of output and employment can be attributed to which of the following economists:

Solution:

Fiscal policy is largely based on ideas from John Maynard Keynes, who argued governments could stabilize the business cycle and regulate economic output. During a recession, the government may employ expansionary fiscal policy by lowering tax rates to increase aggregate demand and fuel economic growth.

QUESTION: 10

The deliberate action of the government to stabilize the economy, as opposed to the inherent automatic stabilizing properties of the fiscal system, is known as

Solution:

Discretionary fiscal policy means the government make changes to tax rates and or levels of government spending. For example, cutting VAT in 2009 to provide boost to spending. Expansionary fiscal policy is cutting taxes and/or increasing government spending.

QUESTION: 11

The idea that irrespective of how a government chooses to increase spending, either by debt financing or tax financing, the outcome will be the same and demand will remain unchanged, is popularly known as:

Solution:

David Ricardo was a British political economist and his most famous theory was that of comparative advantage (along with above theory of Ricardian equivalence) . Comparative advantage refers to the doctrine that any nation should use its resources solely in industries where it has the most international competitiveness 
The theory of Ricardian equivalence, as stated above in the question, was also further developed by Harvard professor Robert Barro who took it much further.

QUESTION: 12

 When was the Fiscal Responsibility and Budget Management Act implemented?

Solution:

It was enacted in August 2003 that made it obligatory for the government to pursue a prudent fiscal policy through the institutional framework. The rules under FRBMA, 2003 were notified with effect from July, 2004 
The Act includes several provisions such as ensuring greater transparency in fiscal operations.

QUESTION: 13

Which among the following could be said to be an 'Open Economy'?

Solution:

An open economy is a type of economy where not only domestic actors but also entities in other countries engage in trade of products. Trade can take the form of managerial exchange, technology transfers, and all kinds of goods and services.

QUESTION: 14

The records of exports and imports in goods and services and transfer payments is known as

Solution:

The current account records a nation's transactions with the rest of the world—specifically its net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments—over a defined period of time, such as a year or a quarter.

QUESTION: 15

 Exchange rates for one currency against another currency, are known as:

Solution:

The nominal effective exchange rate (NEER) is an unadjusted weighted average rate at which one country's currency exchanges for a basket of multiple foreign currencies. The nominal exchange rate is the amount of domestic currency needed to purchase foreign currency.

QUESTION: 16

The ratio of foreign rates to domestic rates measured in the 'same' currency is known as:

Solution:

The real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country's currency against each country within the index.

QUESTION: 17

 Which among the following is taken as the real measure of a country's international competitiveness?

Solution:

The real effective exchange rate (REER) is the weighted average of a country's currency in relation to an index or basket of other major currencies. The weights are determined by comparing the relative trade balance of a country's currency against each country within the index.

QUESTION: 18

 When the exchange rate is determined by the market forces of demand and supply, it is known as :

Solution:

A floating exchange rate is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies.

QUESTION: 19

The Gold Standard was prevalent in the world from:

Solution:

The international gold standard emerged in 1871 following its adoption by Germany. By 1900, the majority of the developed nations were linked to the gold standard. Ironically, the U.S. was one of the last countries to join.

QUESTION: 20

 When was the International Monetary Fund (IMF) set up?

Solution:

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Created in 1945, the IMF is governed by and accountable to the 189 countries that make up its near-global membership.