public finance fiscal & monetary policy section 4 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 : Which of the following may lead to a pressure on the government for an upward revision in salaries of government employees?
  1. Internal Borrowings
  2. External aid and borrowings
  3. Counting Currency
  4. Printing currency

(a) 1 only

(b) 3 only

(c) 1 and 2

(d) 4 only

The correct answers to the above question in:

Answer: (d)

Printing currency is usually the last resort for the government in managing its deficit. It might help the government in times of need but it should be undertaken only in case of extreme necessity as it has many damaging effects on the economy.

It increases inflation proportionally. It may also lead to pressure on the government for an upward revision in salaries of government employees, which in turn will lead to an increase of government’s expenditure, further necessitating printing of currency and more inflation

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Read more public finance fiscal and monetary policy Based Indian Economy Questions and Answers

Question : 1

How the interest-level of a country is affected by FDI ?

a) there is increase or decrease

b) decreases

c) increases

d) remains unaffected

Answer: (b)

A higher international interest rate will decrease FDI since it means a higher cost of funds in the international market and vice versa. Interest rate is a measure of the cost of capital.

A higher interest rate implies more costly investment and, therefore, the higher the interest rate, the more it is likely to defer FDI and the relationship between FDI and the interest rate is expected to be negative.

Love and Lage-Hidalgo (2000) and Erdal and Tatoglu (22002), amongst others, find that an increase in the interest rate leads to a decrease in FDI. Interest rate and FDI can both be the cause and effect of others.

Question : 2

Which one at the following is responsible for the preparation and presentation of Union Budget to the Parliament?

a) Department of Revenue

b) Department of Expenditure

c) Department of Economic Affairs

d) Department of Financial Services

Answer: (c)

The DEA or the Department of Economic Affairs is also responsible for preparation and presentation to the Parliament of Central Budget and the Budgets for the State Governments under President’s Rule and Union Territory Administration.

Question : 3

Plan expenditure in India is met by-

a) Internal debt and other resources

b) Assistance from OECD countries

c) Assistance from Aid India Club

d) Assistance from IMF

Answer: (a)

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