public finance fiscal & monetary policy section 4 MCQ Questions & Answers Detailed Explanation

Answer: (a)

A mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies.

The basic idea of the mixed economy is that the means of production are mainly under private ownership; that markets remain the dominant form of economic coordination; and that profit-seeking enterprises and the accumulation of capital remain the fundamental driving force behind economic activity.

However, unlike a free-market economy, the government would wield considerable indirect influence over the economy through fiscal and monetary policies designed to counteract economic downturns and capitalism’s tendency toward financial crises and unemployment, along with playing a role in interventions that promote social welfare.

Answer: (b)

Answer: (c)

Government debt (also known as public debt, national debt) is the debt owed by a central government. Government debt is one method of financing government operations, but it is not the only method.

Governments can also create money to monetize their debts, thereby removing the need to pay interest. But this practice simply reduces government interest costs rather than truly cancelling government debt. Governments usually borrow by issuing securities, government bonds and bills.

Less creditworthy countries sometimes borrow directly from a supranational organization (e.g. the World Bank) or international financial institutions.

Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against.

Answer: (b)

A parallel economy (black economy) indicates the functioning of an unsanctioned sector in the economy whose objectives run parallel with the social objectives.

A major contributory factor to such an economy is black money which is any money that a person or an organization acquires by a means that involves tax evasion.

It is that income from illegal activities that are not reported to the government for tax purposes.

Answer: (b)

Nicholas Kaldor’s seminal work, titled ‘An Expenditure Tax,’ was brought out in 1955. Kaldor asked to levy a tax on a person’s expenditure (consumption), instead of on his income.

When expenditure is made the basis of taxation, the problems created by the non-comparability of various types of accruals of wealth resolve themselves. This was his major argument in favour of an expenditure tax.

Answer: (d)

Operational research is a discipline that deals with the application of advanced analytical methods to help make better decisions.

Employing techniques from other mathematical sciences, such as mathematical modelling, statistical analysis, and mathematical optimization, operations research arrives at optimal or near-optimal solutions to complex decision-making problems.

In a nutshell, operations research (O.R.) is the discipline of applying advanced analytical methods to help make better decisions.