public finance fiscal & monetary policy section 5 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (b)

Answer: (a)

Expenditure tax is a taxation plan that replaces the income tax (a direct tax). Instead of applying a tax based on the income earned, tax is allocated based on the rate of spending.

This is different from a sales tax, which is applied at the time the goods or services are provided and is considered a consumption tax. The major benefit of this type of tax scheme is the removal of double taxation.

Answer: (c)

Deficit financing is a practice in which a government spends more money than it receives as revenue, the difference being made up by borrowing or minting new funds.

Some economists are of the view that it leads to inflation as governments pay off debts by printing fiat money, increasing the money supply and the purchasing power of the people which increases the aggregate demand.

Answer: (d)

Direct tax is a tax levied directly on the person or company that has to pay it. These taxes are paid directly to the tax authority.

Answer: (b)

Disinvestment is a process where Government sells its equity holding to private sectors. In other ways it is a privatization process where private parties are given shareholding in Government undertakings either wholly or partially.