public finance fiscal & monetary policy section 2 MCQ Questions & Answers Detailed Explanation

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The following question based on Fiscal Policy, Public Finance and Monetary Policy topic of indian economy mcq

Questions : A short-term government security paper is called

(a) Treasury bill

(b) Debenture

(c) Share

(d) Mutual fund

The correct answers to the above question in:

Answer: (a)

Treasury bills are instruments of short-term borrowing by the Government of India, issued as promissory notes under discount.

The interest received on them is the discount which is the difference between the price at which they are issued and their redemption value. They have assured yield and negligible risk of default. They are thus useful in managing short-term liquidity.

At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.

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Question : 1

A financial instrument is called a ‘primary security’ if it represents the liability of :

a) a commercial bank

b) the Government of India

c) some ultimate borrower

d) a primary cooperative bank

Answer: (c)

Instruments (certificates) issued by the ultimate borrower are called primary securities. Instruments issued by intermediaries on behalf of the ultimate borrower are called indirect securities.

The market for instruments (also called securities) issued for the first time, is called the primary market.

Primary security is the asset created out of the credit facility extended to the borrower and/or which are directly associated with the business/project of the borrower for which the credit facility has been extended.

Question : 2

After 1947, development and non-development expenditures have increased, the increase in the former being more. Nondevelopment expenditure involves

  1. interest payments
  2. subsidies
  3. defence
  4. irrigation

a) 1 and 2

b) 1, 2 and 3

c) 1 only

d) 2, 3 and 4

Answer: (b)

Question : 3

With reference to steps taken to achieve financial inclusion in India, consider the following statements:

  1. Scheduled commercial banks initiatives to masses.
  2. Formation of RRB
  3. Adoption of village by bank branches
Which of the statements given above is/are correct?

a) 1 and 3

b) 2 and 3

c) 1 and 2

d) 1, 2 and 3

Answer: (d)

Financial inclusion in India includes initiative of scheduled commercial banks, formation of RRB and adoption of village by bank branches.

Question : 4

Which of the following is/are the components of Public debt?

  1. External debt
  2. Other internal liabilities
  3. Internal debt

a) 1 only

b) 3 only

c) 1 and 2

d) 1, 2 and 3

Answer: (d)

Public debt has three components -

  1. Internal debt,
  2. Other internal liabilities and
  3. External debt

Question : 5

Custom duty is an instrument of

a) Fiscal Policy

b) Foreign Trade Policy

c) Monetary Policy

d) Industrial Policy

Answer: (b)

Custom duty is a tax on imports imposed on an ad valorem basis, i.e, fixed in the form of a percentage on the value of the commodity imported.

Question : 6

Match columns A and B wherein Column B defines Column A 

Column A Column B
I. External debt  a. Includes small saving schemes, provident fund, reserve fund railways
II. Internal debt b. Includes loans from foreign countries and international financial institutions
III. Other internal liabilities c. Includes market loans from banks and financial institutions
Codes: I II III

a) I-c, II-a, III-b

b) I-a, II-d, III-b

c) I-b, II-c, III-a

d) I-b, II-a, III-c

Answer: (c)

Internal debt, Other internal liabilities and External debt are three components of Public debt wherein Internal debt include market loans from banks and financial institutions, short-term borrowings on treasury bills and other bonds and certificates issued by the government.

External debt includes loans from foreign countries and international financial institutions like the World Bank, IMF, ADB, etc.

Other internal liabilities includes small saving schemes, provident fund, a reserve fund of the railways, post and telegraph on which the central government has to pay interest

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