Government budgeting and Fiscal Policy MCQ Quiz - Objective Question with Answer for Government budgeting and Fiscal Policy - Download Free PDF

The correct answer is: b) 15%

Key Points

• Increase in Allocation: The education sector has seen a 15% increase in budget allocation compared to the previous year.
• Significance: This increase reflects the government's focus on improving education.
• Use of Funds: The funds will be used to enhance educational infrastructure, recruit more teachers, and improve learning outcomes.

The correct answer is $1 Trillion.

In News

• Blueprint for a $1-trillion Uttar Pradesh economy in 5 years is ready

Key Points

• CM Yogi Adityanath: "UP will accomplish USD 1 trillion objective with appropriate policies and perfect implementation."
• The chief minister stated that the state's GDP is expected to be more than Rs 25.55 lakh crore in 2023–24.
• The state's total GDP, which was Rs 16.45 lakh crore in 2021–22, has now increased to over Rs 22.58 lakh crore in 2022–23.
• With a 9.2 percent contribution to the national income, Uttar Pradesh has emerged as the nation's second largest economy and is crucial to the nation's growth.

The correct answer is Fiscal deficit.

Key Points

• Fiscal Deficit is the difference between the total income of the government (total taxes and non-debt capital receipts) and its total expenditure.
• A recurring high fiscal deficit means that the government has been spending beyond its means.
• The government meets the fiscal deficit by borrowing money. In a way, the total borrowing requirements of the government in a financial year are equal to the fiscal deficit in that year.
• A fiscal deficit situation occurs when the government’s expenditure exceeds its income excluding borrowings.
• This difference is calculated both in absolute terms and also as a percentage of the Gross Domestic Product (GDP) of the country.
• Fiscal Deficit formula:
  • ​Fiscal Deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the government (Revenue receipts + recovery of loans + other receipts)

Additional Information

• Constitutes the government’s total income or receipts:​
• Revenue receipts of the government:
  • ​Corporation Tax.
  • Income Tax.
  • Custom Duties.
  • Union Excise Duties.
  • GST and taxes of Union territories.
• Non-tax revenues:
  • ​Interest Receipts.
  • Dividends and Profits.
  • External Grants.
  • Other non-tax revenues.
  • Receipts of union territories.
• Expenditures of the government:
  • ​Revenue Expenditure.
  • Capital Expenditure.
  • Interest Payments.
  • Grants-in-aid for creation of capital assets.

The correct answer is Excise duty.

• Indirect tax is the tax levied on the consumption of goods and services. It is not directly levied on the income of a person.
• It is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of the market price of the good or service purchased

Important Points

1. Excise duty is a form of tax imposed on goods for their production, licensing and sale.
2. An indirect tax paid to the Government of India by producers of goods, excise duty is the opposite of Customs duty in that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
3. After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government. The revenue generated from CGST goes to the central government.
4. Today, excise duty applies only to petroleum and liquor.

Additional Information

•  Direct Tax:
  • ​A direct tax is a tax that a person or organization pays directly to the entity that imposed it that is government.
  • The following are types of direct taxes:
  • Corporation tax
    • It is a direct tax imposed on the net income or profit that enterprises make from their businesses.
  • Capital gain tax:
    • Capital can be defined as any profit that is received through the sale of a capital asset. The profit that is received falls under the income category. Therefore, a tax needs to be paid on the income that is received. The tax that is paid is called capital gains tax and it can either be long-term or short term 
  • Income tax
    • It is a direct tax that a government levies on the income of its citizens. The Income Tax Act, of 1961, mandates that the central government collect this tax.

Hence, The correct answer is Excise duty.

The correct answer is Repo Rate.

Key Points

• Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds.
• Repo rate is used by monetary authorities to control inflation.
• Current Repo Rate: 6.5% (June 2024 MPC))
• It is a rate on short-term, collateral-backed borrowing.

Additional Information

• Reverse Repo rate is the rate at which the Reserve Bank of India borrows funds from the commercial banks in the country.
• The bank rate is the rate of interest that is charged by a central bank while lending loans to a commercial bank.
• In the event of a fund deficiency, a bank can borrow money from the central bank of a country. 
• Cash reserve ratio or CRR is a part of the RBI's monetary policy, which helps eliminate liquidity risk and regulate the money supply in the economy.

The correct answer is Union Budget 2021-22.

Key Points

• On 1 February 2021, Finance Minister Nirmala Sitharaman presented the first paperless budget. This was done due to the ongoing COVID-19 pandemic in India.
• The Union Budget 2021 was presented in a digital format for the first time to promote the Government of India's (GoI) Digital India flagship programme.

Additional Information

• The Union Budget of India also referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India.
• The Government presents it on the first day of February so that it could be materialized before the beginning of the new financial year in April.
• Until 2016 it was presented on the last working day of February by the Finance Minister in Parliament.
• The budget division of the department of economic affairs (DEA) in the finance ministry is the nodal body responsible for producing the budget.
• It is presented by means of the Finance Bill and the Appropriation bill has to be passed by Lok Sabha before it can come into effect on 1 April, the start of India's financial year.
• Since 1947, there have been a total of 73 annual budgets, 14 interim budgets, and four special budgets, or mini-budgets.

The correct answer is Fiscal Policy.

Key Points

• Fiscal Policy deals with the taxation and expenditure decisions of the Government.

Additional InformationMonetary policy & Fiscal Policy

• Monetary policy and fiscal policy are two different tools that have an impact on the economic activity of a country.
• Monetary policies are formed and managed by the central banks of a country and such a policy is concerned with the management of money supply and interest rates in an economy.
• Fiscal policy is related to the way a government is managing the aspects of spending and taxation.
• It is the government’s way of stabilising the economy and helping in the growth of the economy.
• Governments can modify the fiscal policy by bringing in measures and changes in tax rates to control the fiscal deficit of the economy.

The correct answer is Wealth tax.

The Correct answer is Subsidies (9%).Important Points

• ​The outlay for the budget 2023-24 is given as below. 
• In 2023-24 budget the Subsidies part got around 7%. Hence the Option 3 is Incorrect.​

The correct answer is Progressive tax.

Key Points

• Progressive Tax
  • In progressive taxation, the tax liability increases with individual or entity income.
  • This is based on the principle of ability to pay.
  • Under this system, the lowest income people are generally exempted while the highest income people pay the highest taxes.
  • Income Tax is thus an example of a progressive tax.
  • Progressive taxation results in the redistribution of income from rich to poor.
  • A progressive tax charges a higher tax rate for people who earn a higher income. 

Additional Information

• Proportional Tax
  • In this system, a flat tax is levied regardless of income or wealth.
  • One example of corporation tax in India whereby government charges a flat rate of 30% on the income earned by the companies in India.
• Regressive Tax
  • A regressive tax is when the tax rate decreases as the amount subject to taxation increases; the tax rate progresses from high to low.
  • The lowest amount is subject to higher taxation and this leads to individuals with low income bearing the highest-burden of regressive taxes.
  • Such tax does not take into account the ability to pay.
• Pay-roll tax:
  • The tax that is withheld, charged, or levied on an employer's payroll is known as payroll tax.
  • Wages, gross salary, incentives, and any other type of remuneration paid to employees shall be included.
  • Payroll taxes are taxes that an employer is compelled to pay or withhold on behalf of his or her employees.

The correct answer is Finance Minister.

Key Points

• GST Council is the governing body of GST with 33 members.
• Goods and Service Tax Council (GST) of India is headed by the union finance minister.
• The GST Council's first chairman was Arun Jaitley.
• The GST council is currently chaired by Union Finance Minister Nirmala Sitharaman.
• The GST council is established under Article 279 A of the Indian constitution.

Important Points

• Under GST present goods and services are taxed at 0%, 5%, 12%, 18% & 28%.
• GST (Goods and Services Tax) is an indirect tax in India that applies to the manufacture, sale, and consumption of goods and services.
• In India, the Goods and Services Tax (GST) went into effect on July 1, 2017.
• As part of the 101st Amendment, the GST was enacted.
• The state of Assam was the first to approve the GST bill.
• Odisha is the 16th state to vote in favor of the GST bill.
• GST implementation needs the assent of 16 states.

The correct answer is option 2, i.e. Budgeting.

• The budget is prepared by the Department of Economic Affairs of the Ministry of Finance.
• The head of the committee is Finance minister, part of the executive.
• Budget is the 'annual financial statement' which includes estimated receipts and expenditures of the Government of India.
• Parliament controls over the executive in financial matters though - 
  • control before the appropriation of grants through the enactment of the budget (Passing of Budget).
  • control after the enactment through financial committees.
• The primary function of the legislature is to make laws.
  • It has exclusive powers to make laws. (Union list, state list and concurrent list)

The correct answer is Corporate Tax.

Key Points

• Corporate tax is the single largest source of income to the government of India.
• According to the Budget for 2019-20 presented in Parliament by Finance Minister Nirmala Sitharaman, Goods and Services Tax collections will contribute 19 paise in every rupee revenue.
• Corporation tax is the single largest source of income, contributing 21 paise to each rupee earned.

Important Points

• Taxes are generally an involuntary fee levied on individuals and corporations by the government to finance government activities.
• There are two types of Taxes in India- Direct Tax and Indirect Tax.
• Direct Tax
  • The tax that is levied by the government directly on the individuals or corporations is called Direct Taxes.
  • Income Tax, Corporation/Municipal Tax and Wealth Tax are some of the examples of Direct Tax.
  • They are progressive in nature.
• Indirect Tax
  • The tax that is levied by the government on one entity (Manufacturer of goods), but is passed on to the final customer by the manufacturer.
  • VAT, Service tax, GST, Excise duty, entertainment tax and Customs Duty are some of the examples of Indirect Tax.
  • They are regressive in nature.
• Corporate tax is the single largest source of revenue for the government of India. In the year 2023-24, the Indian government is estimated to receive ₹2.5 trillion in revenue from corporate tax, which accounts for about 40% of total tax revenue. Corporate tax rates vary depending on the amount of income and profits made by companies.

The correct answer is 15 paisa.

Key Points

• As per the Union Budget presented in Parliament by Finance Minister Nirmala Sitharaman Goods and Services Tax (GST) will contribute 17 paise in every rupee of revenue, while corporation tax will account for 15 paise.
• The Union Budget for FY 2023-24 this year aims to further strengthen India's economic status.
• In the 75th Year of India's Independence, the World has recognized the Indian Economy as a 'bright star' with its Economic Growth estimated at 7 per cent, which is the highest among all major economies.

Additional Information

• Goods and Services Tax (GST) is a value-added tax system that is implemented in many countries around the world.
• It is a comprehensive indirect tax levied on the supply of goods and services at each stage of the supply chain.
• GST aims to streamline the taxation process, reduce tax evasion, and create a unified tax structure.

The correct answer is Four.

Key Points

• Union Budget of 2021-22 was the first-ever digital Union Budget.
• It was presented by Union Finance Minister Nirmala Sitharaman.
• As per the Union Budget of 2021-22, The central government has announced the setting up of four regional institutes of virology.
  • Regional NIV will help in efficiently countering the threats of viral pandemics/epidemics in the future.
• Apart from the new virology institutes the budget proposals also include the setting up of a regional research platform for the WHO South-East Asia region.
• It also established the National Institute of One Health (NIO) at Nagpur for research in ‘One Health’.
• The Union Budget 2021 allocated Rs 2,663 crore for Health Research for the upcoming fiscal year 2021-22.

Additional Information

• The Budget proposals for 2021-22 rest on 6 pillars.
  1. Health and Wellbeing
  2. Physical & Financial Capital, and Infrastructure
  3. Inclusive Development for Aspirational India
  4. Reinvigorating Human Capital
  5. Innovation and R&D
  6. Minimum Government and Maximum Governance