Basic Public Finance MCQs
What does public finance primarily study?
A) Personal finance
B) Government revenue and expenditure
C) Corporate finance
D) International finance
Answer: B
Which of the following is a source of government revenue?
A) Grants from international organizations
B) Donations from charities
C) Loans from commercial banks
D) All of the above
Answer: A
Which tax is levied on the income earned by individuals and corporations?
A) Sales tax
B) Excise tax
C) Income tax
D) Property tax
Answer: C
What does the term “fiscal policy” refer to?
A) Government spending policy
B) Central bank monetary policy
C) Taxation policy
D) All of the above
Answer: D
Which statement is true about government expenditures?
A) They include only payments for goods and services.
B) They exclude social security payments.
C) They encompass all government spending.
D) They are funded solely by taxes.
Answer: C
Which type of tax is typically imposed on goods and services at the point of sale?
A) Income tax
B) Value-added tax (VAT)
C) Corporate tax
D) Property tax
Answer: B
What is the purpose of a government budget?
A) To control inflation
B) To allocate resources and manage finances
C) To regulate international trade
D) To set interest rates
Answer: B
Which expenditure category includes spending on education, healthcare, and social welfare programs?
A) Capital expenditures
B) Current expenditures
C) Transfer payments
D) Development expenditures
Answer: B
Which type of deficit occurs when government expenditures exceed revenue in a given fiscal year?
A) Budget deficit
B) Trade deficit
C) Current account deficit
D) Fiscal deficit
Answer: A
What does the term “public debt” refer to?
A) Debt owed by individuals to the government
B) Debt owed by the government to individuals
C) Debt owed by corporations to the government
D) Debt owed by the government to international organizations
Answer: B
Which economic theory suggests that government spending can stimulate economic growth during recessions?
A) Monetarism
B) Keynesianism
C) Supply-side economics
D) Classical economics
Answer: B
What is the main objective of contractionary fiscal policy?
A) To reduce government expenditures
B) To increase taxes
C) To control inflation
D) To stimulate economic growth
Answer: C
Which principle suggests that taxes should be based on an individual’s ability to pay?
A) Benefit principle
B) Ability-to-pay principle
C) Proportional tax principle
D) Regressive tax principle
Answer: B
Which economic indicator measures the total value of goods and services produced within a country’s borders in a specific period?
A) Gross Domestic Product (GDP)
B) Consumer Price Index (CPI)
C) Unemployment rate
D) Inflation rate
Answer: A
What is the purpose of a progressive tax system?
A) To tax everyone at the same rate
B) To tax higher-income individuals at higher rates
C) To tax lower-income individuals at higher rates
D) To exempt certain income groups from taxation
Answer: B
Which statement is true about regressive taxes?
A) They impose a higher tax rate on higher incomes.
B) They impose a higher tax rate on lower incomes.
C) They impose a flat tax rate on all income levels.
D) They exempt certain income sources from taxation.
Answer: B
Which economic concept explains the decrease in the marginal utility of income as wealth increases?
A) Laffer curve
B) Diminishing returns
C) Utility maximization
D) Income elasticity
Answer: B
What is the purpose of a supply-side fiscal policy?
A) To increase government spending
B) To reduce taxes
C) To stimulate consumer demand
D) To promote economic growth by encouraging production
Answer: D
Which type of tax imposes the same percentage rate of taxation on everyone, regardless of income level?
A) Progressive tax
B) Regressive tax
C) Proportional tax
D) Direct tax
Answer: C
Which economic indicator measures changes in the average level of prices of goods and services over time?
A) Gross Domestic Product (GDP)
B) Consumer Price Index (CPI)
C) Unemployment rate
D) Balance of payments
Answer: B
What is the purpose of a government subsidy?
A) To reduce government expenditures
B) To promote the production or consumption of certain goods or services
C) To increase government revenue
D) To stabilize interest rates
Answer: B
Which economic theory suggests that government intervention in markets should be minimized?
A) Monetarism
B) Keynesianism
C) Supply-side economics
D) Laissez-faire economics
Answer: D
Which statement is true about a balanced budget?
A) Government expenditures exceed government revenue.
B) Government revenue equals government expenditures.
C) Government revenue exceeds government expenditures.
D) Government debt is minimized.
Answer: B
What does the term “automatic stabilizers” refer to in public finance?
A) Government policies that automatically adjust to economic conditions
B) Tax cuts aimed at stimulating economic growth
C) Subsidies provided to stabilize commodity prices
D) Tariffs imposed on imports to protect domestic industries
Answer: A
Which economic indicator measures the percentage of people who are willing and able to work but are currently unemployed?
A) Gross Domestic Product (GDP)
B) Consumer Price Index (CPI)
C) Unemployment rate
D) Inflation rate
Answer: C
What is the purpose of a progressive tax system?
A) To tax everyone at the same rate
B) To tax higher-income individuals at higher rates
C) To tax lower-income individuals at higher rates
D) To exempt certain income groups from taxation
Answer: B
Which statement is true about regressive taxes?
A) They impose a higher tax rate on higher incomes.
B) They impose a higher tax rate on lower incomes.
C) They impose a flat tax rate on all income levels.
D) They exempt certain income sources from taxation.
Answer: B
Which economic concept explains the decrease in the marginal utility of income as wealth increases?
A) Laffer curve
B) Diminishing returns
C) Utility maximization
D) Income elasticity
Answer: B
What is the purpose of a supply-side fiscal policy?
A) To increase government spending
B) To reduce taxes
C) To stimulate consumer demand
D) To promote economic growth by encouraging production
Answer: D
Which type of tax imposes the same percentage rate of taxation on everyone, regardless of income level?
A) Progressive tax
B) Regressive tax
C) Proportional tax
D) Direct tax
Answer: C
Which economic indicator measures changes in the average level of prices of goods and services over time?
A) Gross Domestic Product (GDP)
B) Consumer Price Index (CPI)
C) Unemployment rate
D) Balance of payments
Answer: B
What is the purpose of a government subsidy?
A) To reduce government expenditures
B) To promote the production or consumption of certain goods or services
C) To increase government revenue
D) To stabilize interest rates
Answer: B
Which economic theory suggests that government intervention in markets should be minimized?
A) Monetarism
B) Keynesianism
C) Supply-side economics
D) Laissez-faire economics
Answer: D
Which statement is true about a balanced budget?
A) Government expenditures exceed government revenue.
B) Government revenue equals government expenditures.
C) Government revenue exceeds government expenditures.
D) Government debt is minimized.
Answer: B
What does the term “automatic stabilizers” refer to in public finance?
A) Government policies that automatically adjust to economic conditions
B) Tax cuts aimed at stimulating economic growth
C) Subsidies provided to stabilize commodity prices
D) Tariffs imposed on imports to protect domestic industries
Answer: A
Which economic indicator measures the percentage of people who are willing and able to work but are currently unemployed?
A) Gross Domestic Product (GDP)
B) Consumer Price Index (CPI)
C) Unemployment rate
D) Inflation rate
Answer: C
What is the purpose of a tariff in public finance?
A) To increase government revenue
B) To control inflation
C) To reduce government expenditures
D) To stabilize interest rates
Answer: A
Which principle suggests that government spending should be efficient and yield maximum benefit for society?
A) Benefit principle
B) Efficiency principle
C) Fiscal responsibility principle
D) Cost-benefit principle
Answer: D
Which term refers to the total amount of money owed by a government?
A) Public debt
B) Fiscal deficit
C) Budget surplus
D) Tax revenue
Answer: A
What is the purpose of a sin tax?
A) To discourage consumption of harmful products
B) To promote exports
C) To reduce unemployment
D) To fund social security programs
Answer: A
Which economic theory emphasizes the role of government spending in stimulating economic growth during periods of recession?
A) Laissez-faire economics
B) Supply-side economics
C) Keynesian economics
D) Monetarism
Answer: C
Which statement best describes deficit financing?
A) Financing government expenditures through loans and borrowing
B) Achieving budget surplus through increased taxation
C) Using foreign aid to fund infrastructure projects
D) Increasing government revenue through tariffs
Answer: A
What is the primary objective of a balanced budget amendment?
A) To eliminate government debt
B) To ensure government revenue exceeds expenditures
C) To prevent government shutdowns
D) To control inflation rates
Answer: B
Which tax system applies higher tax rates to higher-income earners?
A) Progressive tax system
B) Regressive tax system
C) Proportional tax system
D) Flat tax system
Answer: A
Which term refers to the amount of income that individuals or corporations are required to pay to the government?
A) Tax rate
B) Tax base
C) Tax liability
D) Tax exemption
Answer: C
Which statement is true about a budget surplus?
A) Government expenditures exceed government revenue.
B) Government revenue equals government expenditures.
C) Government revenue exceeds government expenditures.
D) Government debt increases.
Answer: C
What does the term “tax incidence” refer to in public finance?
A) The extent to which taxes impact economic growth
B) The distribution of tax burdens among taxpayers
C) The enforcement of tax laws by government agencies
D) The calculation of effective tax rates
Answer: B
Which economic indicator measures the rate at which the general level of prices for goods and services is rising?
A) Gross Domestic Product (GDP)
B) Consumer Price Index (CPI)
C) Unemployment rate
D) Inflation rate
Answer: D
What is the purpose of a trade deficit?
A) To increase government revenue
B) To control inflation
C) To reduce government expenditures
D) To import more goods and services than are exported
Answer: D
Which principle suggests that taxes should be based on the benefits received from government services?
A) Ability-to-pay principle
B) Benefit principle
C) Proportional tax principle
D) Regressive tax principle
Answer: B