Fiscal policy refers to the use of
A Monetary tools by RBI
B Government expenditure and taxation
C Banking regulations
D Credit control measures
Fiscal policy involves government decisions on spending, taxation, and borrowing to influence the economy.
The main objective of fiscal policy is to achieve
A Maximum taxation
B Economic stability and growth
C Budget surplus only
D Monetary control
Fiscal policy aims at growth, stability, and equitable distribution of income.
Which of the following is NOT an objective of fiscal policy?
A Full employment
B Price stability
C Income redistribution
D Currency issuance
Currency issuance is a function of monetary policy, not fiscal policy.
Expansionary fiscal policy is adopted during
A Inflation
B Boom
C Recession
D Hyperinflation
Expansionary policy increases spending or cuts taxes to stimulate demand.
Contractionary fiscal policy is used to control
A Unemployment
B Inflation
C Deflation
D Depression
Reducing spending or increasing taxes curbs excess demand.
Increase in government expenditure leads to
A Decrease in aggregate demand
B Increase in aggregate demand
C No change in demand
D Deflation
Government spending directly raises aggregate demand.
Reduction in taxes affects the economy by
A Reducing disposable income
B Increasing disposable income
C Increasing prices
D Reducing savings
Tax cuts raise disposable income, boosting consumption.
Which of the following is a fiscal policy tool?
A Repo rate
B Open market operations
C Government expenditure
D Cash reserve ratio
Government spending is a key fiscal instrument.
Budgetary policy mainly operates through
A Money supply
B Interest rate
C Aggregate demand
D Wage rate
Fiscal actions influence total demand in the economy.
Which fiscal measure reduces income inequality?
A Indirect taxes
B Progressive taxation
C Subsidies to rich
D Tax exemptions to corporates
Progressive taxes impose higher burden on higher incomes.
Public expenditure on education and health promotes
A Inflation
B Capital flight
C Human capital formation
D Revenue deficit
Social sector spending improves productivity and growth.
Which of the following is a non-discretionary fiscal tool?
A Planned public expenditure
B Progressive income tax
C Capital expenditure
D Budgetary deficit
Progressive taxes act as automatic stabilizers.
Automatic stabilizers help in
A Increasing inflation
B Reducing economic fluctuations
C Increasing fiscal deficit
D Raising public debt
They adjust automatically with income changes.
Which of the following is an example of automatic stabilizer?
A Government investment
B Progressive taxation
C Public borrowing
D Disinvestment
Tax liability rises or falls automatically with income.
Balanced budget multiplier equals
A Zero
B One
C Less than one
D More than one
Equal increase in taxes and spending raises income by same amount.
Fiscal policy affects savings mainly through
A Interest rate
B Taxation
C Money supply
D Credit creation
Taxes alter disposable income and saving behavior.
Which of the following strengthens fiscal policy effectiveness?
A High MPC
B High leakages
C Low consumption
D High savings
High MPC increases multiplier effect.
Time lag is a major limitation of fiscal policy because
A Policy decisions take time to implement
B It increases inflation
C It reduces savings
D It lowers growth
Recognition and implementation delays reduce effectiveness.
Fiscal policy becomes less effective when
A Economy has excess capacity
B MPC is high
C Leakages are high
D Government spending increases
Leakages reduce multiplier impact.
Crowding out effect occurs when
A Public spending increases private investment
B Government borrowing raises interest rates
C Taxes are reduced
D Savings increase
Higher interest rates discourage private investment.
Which situation requires expansionary fiscal policy?
A Inflation
B Boom
C Recession
D Excess demand
Demand stimulation is needed during recession.
Which fiscal action helps control inflation?
A Increase public spending
B Reduce taxes
C Increase taxes
D Increase subsidies
Higher taxes reduce purchasing power.
Fiscal policy helps resource allocation by
A Increasing money supply
B Encouraging desired sectors
C Fixing wages
D Controlling prices directly
Tax incentives and spending guide investment.
Public debt becomes a burden when
A Used for capital formation
B Used for revenue expenditure
C Growth rate exceeds interest rate
D Borrowings are productive
Borrowing for consumption yields no future returns.
Which factor limits fiscal policy in developing countries?
A Large population
B Narrow tax base
C High MPC
D Low inflation
Limited tax capacity restricts fiscal action.
Fiscal policy effectiveness is reduced due to
A Administrative inefficiency
B Automatic stabilizers
C High MPC
D Capital expenditure
Poor implementation weakens impact.
Which of the following reflects sound fiscal policy?
A Persistent high deficits
B Borrowing for consumption
C Controlled deficits and productive spending
D Unlimited subsidies
Sustainable spending ensures growth.
Fiscal deficit financed through borrowing from public leads to
A Increase in money supply
B Inflation immediately
C Transfer of resources
D Reduction in interest rate
It transfers savings from private to public sector.
Fiscal policy is said to be counter-cyclical when it
A Follows business cycle
B Reinforces business cycle
C Opposes business cycle
D Ignores business cycle
Counter-cyclical policy stabilizes fluctuations.
During boom, fiscal policy should be
A Expansionary
B Neutral
C Contractionary
D Deficit-financed
Demand restraint avoids overheating.
Which policy is more effective in correcting income distribution?
A Monetary policy
B Fiscal policy
C Trade policy
D Wage policy
Taxes and spending directly affect income distribution.
Fiscal policy can promote growth by
A Increasing interest rates
B Increasing capital expenditure
C Reducing investment
D Increasing indirect taxes
Capital spending builds productive capacity.
Fiscal policy faces political constraints because
A Decisions are automatic
B Policy is made by RBI
C Decisions involve public opinion
D It has no time lag
Political considerations affect budget decisions.
Which expenditure has maximum multiplier effect?
A Defense salaries
B Interest payments
C Capital expenditure
D Subsidies
Capital spending generates income and assets.
Which tax is most suitable for stabilization policy?
A Lump-sum tax
B Progressive income tax
C Indirect tax
D Specific tax
Progressive taxes automatically stabilize income.
Fiscal policy helps in correcting balance of payments by
A Increasing imports
B Reducing exports
C Reducing domestic demand
D Increasing money supply
Lower demand reduces imports.
Which situation reduces effectiveness of fiscal policy multiplier?
A High MPC
B Closed economy
C High imports
D Low taxes
Imports cause leakage of income.
Fiscal discipline refers to
A High government spending
B Controlled fiscal deficit
C Unlimited borrowing
D Higher subsidies
Discipline ensures sustainability of public finance.
Which factor makes fiscal policy rigid?
A Automatic stabilizers
B Political delays
C High MPC
D Capital expenditure
Decision-making delays reduce flexibility.
Fiscal policy mainly influences employment through
A Wage cuts
B Money supply
C Aggregate demand
D Labour supply
Higher demand increases output and jobs.
Which policy increases disposable income directly?
A Monetary tightening
B Increase in taxes
C Reduction in taxes
D Increase in CRR
Lower taxes raise take-home income.
Which fiscal action is inflationary?
A Reduction in government spending
B Increase in taxes
C Increase in public expenditure
D Budget surplus
Higher spending raises aggregate demand.
Fiscal policy is less effective when economy is near
A Underemployment
B Recession
C Full employment
D Depression
Output cannot expand further.
Which expenditure creates future income streams?
A Subsidies
B Salaries
C Capital expenditure
D Interest payments
Capital assets generate returns.
Which tool of fiscal policy affects consumption most directly?
A Public borrowing
B Taxation
C Disinvestment
D Grants
Taxes alter disposable income.
Fiscal policy aims at stabilization by
A Encouraging cycles
B Ignoring demand
C Counteracting fluctuations
D Fixing prices
Policy smoothens economic cycles.
Which limitation arises due to administrative structure?
A Political constraint
B Time lag
C Implementation lag
D Inflationary bias
Weak administration delays execution.
Fiscal policy is preferred over monetary policy during
A Inflation
B Liquidity trap
C Boom
D Excess demand
Monetary policy becomes ineffective.
Which factor increases fiscal multiplier?
A High taxes
B High savings
C High MPC
D High imports
More spending circulation boosts multiplier.
The ultimate goal of fiscal policy is to achieve
A Maximum taxation
B Budget surplus
C Sustainable economic development
D Zero deficit
Fiscal policy supports long-term, inclusive growth.