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

Answer: (a)

Functional finance is an economic theory proposed by Abba P. Lerner, based on the effective demand principle and chartism.

It states that government should finance itself to meet explicit goals, such as taming the business cycle, achieving full employment, ensuring growth, and low inflation.

Answer: (d)

The commodities which are produced within the country are levied by central excise duty.

However, commodities on which state governments impose excise duties (e.g., liquor, drugs) are exempted from the central excise duty

Answer: (b)

A progressive tax is a tax by which the tax rate increases as the taxable base amount increases.” Progressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.

It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime.

Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay.

Answer: (b)

A country going for foreign aid has to take several precautions.

However, two major precautions are: Keeping the borrowing level low so that country does not fall into a debt trap, and Keeping foreign aid strings-free

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)