Practice Test

Q1) What is market failure? Show Answer

Q2) 'Market failure' is a situation which occurs when Show Answer

Q3) Which of the following is an example of market failure? Show Answer

Q4) Which of the following is an outcome of market power? Show Answer

Q5) Markets do not exist Show Answer

Q6) Which of the following is the right argument for provision of public good by government? Show Answer

Q7) Adequate amount of a pure public good will not be provided by the private market because of Show Answer

Q8) The free rider problem arises because of Show Answer

Q9) A chemical factory has full information regarding the risks of a product, but continues to sell it. This is possible because of Show Answer

Q10) If an individual tends to drive his car in a dangerously high speed because he has a comprehensive insurance cover, it is a case of Show Answer

Q11) Smoking in public is a case of Show Answer

Q12) Read the following statements:
I. The market-based approaches to control externalities operate through price mechanism.
II. When externalities are present, the welfare loss would be eliminated.
III. The key is to internalizing an externality is to ensure that those who create the externalities include them while making decisions of the above statements. Show Answer

Q13) Which of the following statements is false? Show Answer

Q14) Which one of the following would you suggest for reducing negative externality? Show Answer

Q15) A Pigouvian subsidy Show Answer

Q16) If governments make it compulsory to avail insurance protection, it is because Show Answer

Q17) The Competition Act, 2002 aims to Show Answer

Q18) Rules regarding product labeling Show Answer

Q19) Identify the incorrect statement Show Answer

Q20) The incentive to let other people pay for a good or service, the benefits of which are enjoyed by an individual Show Answer

Q21) A government subsidy Show Answer

Q22) The production and consumption of demerit goods are Show Answer

Q23) The argument for education subsidy is based on Show Answer

Q24) Read the following statements:
I. Social costs are the total costs incurred by the society when a good is consumed or produced.
II. The external costs are not included in firms' income statements or
consumers' decisions.
III. Each firm's cost which is considered for determining output would be only private cost or direct cost of production which does not include external costs.
IV. Production and consumption decisions are efficient only when private costs are considered. Of the above Show Answer

Q25) Government failure occurs when Show Answer

Q26) Externalities occur when: Show Answer

Q27) Negative externalities lead to: Show Answer

Q28) A common example of a negative externality is: Show Answer

Q29) Positive externalities lead to: Show Answer

Q30) An example of a positive externality is: Show Answer

Q31) When externalities are present in a market, the equilibrium quantity and price determined by the market do not represent the: Show Answer

Q32) Which policy tool is often used to address negative externalities? Show Answer

Q33) Government intervention to address externalities is most justified when: Show Answer

Q34) When the production of a good generates positive externalities, the social benefit: Show Answer

Q35) Which of the following is an example of a positive externality in production? Show Answer

Q36) Market failure occurs when: Show Answer

Q37) Which policy tool can be used to address positive externalities and encourage their production or consumption? Show Answer

Q38) A negative production externality results in: Show Answer

Q39) The tragedy of the commons refers to a situation where: Show Answer

Q40) Pigouvian taxes are designed to: Show Answer

Q41) Which of the following is an example of a positive externality in consumption? Show Answer

Q42) Market-based solutions to address externalities include: Show Answer

Q43) When negative externalities exist, the market equilibrium quantity will be: Show Answer

Q44) The concept of "free rider problem" refers to: Show Answer

Q45) Which of the following is an example of a public good? Show Answer

Q46) The concept of "information asymmetry" occurs when: Show Answer

Q47) Which market structure is most likely to lead to an inefficient allocation of resources in the presence of externalities? Show Answer

Q48) What is market power? Show Answer

Q49) Why does the government intervene to reduce market power? Show Answer

Q50) What is the primary objective of competition-based regulations? Show Answer

Q51) Which of the following is an example of a competition-based regulation? Show Answer

Q52) What is the role of competition authorities in enforcing competition-based regulations? Show Answer

Q53) The goal of competition-based regulations is to: Show Answer

Q54) Which competition-based regulation focuses on ensuring that firms do not engage in unfair practices that restrict competition? Show Answer

Q55) Which of the following is a common government intervention to reduce market power? Show Answer

Q56) Antitrust laws are designed to: Show Answer

Q57) Which government agency is responsible for enforcing antitrust laws in the United States? Show Answer

Q58) Redistribution policies are likely to have efficiency costs because Show Answer

Q59) Macroeconomic stabilization may be achieved through Show Answer

Q60) Which of the following policies of the government fulfils the redistribution function? Show Answer

Q61) Choose the correct statement Show Answer

Q62) The justification for government intervention is best described by Show Answer

Q63) Read the following statements:
1. The market-generated allocation of resources is usually imperfect and leads to inefficient allocation of resources in the economy.
2. Market failures can at all times be corrected through government intervention.
3. Public goods will not be produced in sufficient quantities in a market economy.
Of the three statements above: Show Answer

Q64) When a government offers unemployment benefits and also resorts to progressive taxation which function does it seem to fulfil? Show Answer

Q65) Government of Emeline Land decides to provide most modern road infrastructure throughout the nation. This can be classified as Show Answer

Q66) Which function does the government perform when it provides transfer payments to offer support to the underprivileged? Show Answer

Q67) Which of the following is true in respect of centre and state government finances? Show Answer

Q68) GST compensation is given to Show Answer

Q69) Which of the following is true in respect of the role of Finance Commissions in India?
I. The distribution between the union and the states of the net proceeds of taxes.
II. Allocation between the states of the respective shares of such proceeds.
III. Make Recommendations on integrated GST on inter-state movement of goods and services.
IV. To recommend expenditure decentralization among different states. Show Answer

Q70) In a federal set up, the stabilization function can be effectively performed by Show Answer

Q71) Which of the following is concerned with division of economic responsibilities between the central and state Government of India? Show Answer

Q72) Fiscal Federalism refers to __________. Show Answer

Q73) Which one of the following taxes is levied by the state government only? Show Answer

Q74) The percentage of share of states in central taxes for the period 2021-26 recommended by the Fifteenth Finance Commission is Show Answer

Q75) Which of the following is not a criterion for determining distribution of central taxes among states for 2021-26 period? Show Answer

Q76) As per the supreme court verdict in May 2022 Show Answer

Q77) Providing social sector services such as health and education is Show Answer

Q78) The difference between the budget deficit of a government and its debt service payments is Show Answer

Q79) In NITI Aayog, NITI stands for Show Answer

Q80) Public debt management aims at Show Answer

Q81) The railway budget is Show Answer

Q82) Outcome budgeting Show Answer

Q83) Corporate tax Show Answer

Q84) Government borrowings from foreign governments and institutions Show Answer

Q85) A budget is said to be unbalanced when Show Answer

Q86) Fiscal deficit refers to Show Answer

Q87) Budget of the government generally impacts Show Answer

Q88) Which of the following is a statement submitted along with the budget as a requirement of FRBM Act? Show Answer

Q89) Government borrowing is treated as capital receipt because Show Answer

Q90) 'Retail Direct' scheme is Show Answer

Q91) Non-debt capital receipts Show Answer

Q92) Which of the following is a capital receipt? Show Answer

Q93) Grants given by the central government to state governments is Show Answer

Q94) Short-term credit from the Reserve Bank to state governments to bridge temporary mismatches in cash flows is known as Show Answer

Q95) What is fiscal policy? Show Answer

Q96) Expansionary fiscal policy is used to: Show Answer

Q97) Contractionary fiscal policy is implemented to: Show Answer

Q98) The main tools of fiscal policy include: Show Answer

Q99) During an economic recession, the government is likely to implement: Show Answer

Q100) Fiscal policy refers to the Show Answer

Q101) If real GDP is continuously declining and the rate of unemployment in the economy is increasing, the appropriate policy should be to Show Answer

Q102) Which of the following are likely to occur when an economy is in an expansionary phase of a business cycle?
(A) Rising unemployment rate
(B) Falling unemployment rate
(C) Rising inflation rate
(D) Deflation
(E) Falling or stagnant wage for workers
(F) Increasing tax revenue
(G) Falling tax revenue Show Answer

Q103) During recession the fiscal policy of the government should be directed towards Show Answer

Q104) According to Keynesian economics, when we have inflation an effective fiscal policy should not include Show Answer

Q105) Keynesian economists believe that Show Answer

Q106) Which of the following may ensure a decrease in aggregate demand during inflation? Show Answer

Q107) A recession is characterized by Show Answer

Q108) Which one of the following is an example of fiscal policy? Show Answer

Q109) Which of the following would illustrate a recognition lag? Show Answer

Q110) An expansionary fiscal policy, taking everything else constant, would in the short-run have the effect of Show Answer

Q111) Which statement (s) is (are) correct about crowding out?
I. A decline in private spending may be partially or completely offset by the expansion of demand resulting from an increase in government expenditure.
II. Crowding out effect is the negative effect fiscal policy may generate when money from the private sector is 'crowded out' to the public sector.
III. When spending by government in an economy increases government spending would be crowded out.
IV. Private investments, especially the ones which are interest -sensitive, will be reduced if interest rates rise due to increased spending by government. Show Answer

Q112) Which of the following policies is likely to shift an economy's aggregate demand curve to the right? Show Answer

Q113) Identify the incorrect statement Show Answer

Q114) Read the following statements:
I. Fiscal policy is said to be contractionary when revenue is higher than spending i.e., the government budget is in surplus.
II. Other things constant, a fiscal expansion will raise interest rates and "crowd out" some private investment.
III. During inflation new taxes can be levied and the rates of existing taxes are raised to reduce disposable incomes.
IV. Classical economists advocated contractionary fiscal policy to solve the problem of inflation.
Of the above statements. Show Answer

Q115) While resorting to expansionary fiscal policy Show Answer

Q116) Contractionary fiscal policy Show Answer

Q117) When government spending is deliberately reduced to bring in stability Show Answer

Q118) An increase in personal income taxes Show Answer

Q119) While the government resorts to deliberate fiscal policy it may not attempt to manipulate Show Answer

Q120) Which of the following fiscal remedy would you advice when an economy is facing recession? Show Answer

Q121) While if governments compete with the private sector to borrow money for securing resources for expansionary fiscal policy Show Answer

Q122) The revenue deficit for country A is Show Answer

Q123) Fiscal deficit of country A is Show Answer

Q124) Primary deficit of Country A is Show Answer

Q125) The capital receipts are Show Answer

Q126) Revenue deficit is Show Answer

Q127) The non-debt capital receipts of this country is Show Answer