TRB PG Assistant - Theories of public expenditure - canons of public expenditure, growth of public expenditure, public expenditure in India, public debt - burden and effects, methods of repayment, public borrowing and development finance in India Question Bank with Options

1. Development finance in India aims to mobilize resources for:

A) Short-term government deficits

B) Long-term capital formation and economic growth

C) Financing election campaigns

D) Subsidizing luxury consumption

2. Which of the following is a method of public debt repayment that involves paying off the debt through a lottery system?

A) Conversion

B) Sinking Fund

C) Amortization

D) Lottery Bonds

3. The 'burden' of public debt can be mitigated by:

A) Increasing the interest rate paid on debt

B) Ensuring economic growth outpaces the debt growth rate

C) Reducing government spending on infrastructure

D) Increasing the reliance on external borrowing

4. The growth of public expenditure in India is also attributed to:

A) A decrease in the demand for public goods

B) The increasing complexity of government administration and defense needs

C) Reduced global trade

D) A policy of economic contraction

5. Which of the following is a mechanism for development finance in India?

A) Issuance of short-term treasury bills

B) National Small Savings Fund

C) Printing of currency notes

D) Reduction in import duties

6. Public borrowing for productive purposes is justified because it:

A) Increases the immediate tax burden

B) Leads to a transfer of resources from the private to the public sector without increasing overall productivity

C) Enhances the productive capacity of the economy, generating future returns

D) Reduces the need for private investment

7. The 'burden' of external debt is generally considered heavier than internal debt because:

A) Internal debt is always larger

B) External debt requires payment in foreign currency, implying resource outflow

C) Interest rates on internal debt are higher

D) Internal debt is repaid faster

8. Which of the following is a consequence of heavy public borrowing?

A) Increased savings rate

B) Reduced inflationary pressure

C) Higher interest payments, diverting funds from development

D) Appreciation of the domestic currency

9. The 'Canon of Public Finance' that emphasizes that expenditure should not exceed the income is known as the:

A) Canon of Economy

B) Canon of Elasticity

C) Canon of Budgets

D) Canon of Adequacy

10. Development finance in India focuses on funding:

A) Short-term consumption needs

B) Projects that enhance productive capacity and long-term growth

C) Government administrative expenses

D) Import of luxury goods

11. Which method of repayment involves a gradual reduction of debt over time through regular installments?

A) Conversion

B) Sinking Fund

C) Amortization

D) Repudiation

12. The 'burden' of public debt is primarily about the:

A) Nominal value of the debt

B) Cost of servicing the debt and its impact on resource allocation

C) Interest rate paid on the debt

D) Maturity period of the debt

13. Public expenditure in India has grown due to:

A) A decrease in population

B) Expansion of social security and welfare measures

C) Reduced need for infrastructure development

D) A shift towards a smaller government

14. Which theory explains the continuous increase in the share of public expenditure in national income over time?

A) Keynesian Multiplier Theory

B) Wagner's Law of Increasing State Activity

C) Lafer Curve

D) Ricardian Equivalence

15. The 'Canons of Public Expenditure' are principles that guide:

A) The determination of tax rates

B) The management of international trade

C) The judicious use of government funds

D) The regulation of financial markets

16. Development finance in India is often channeled through:

A) Commercial banks only

B) Specialized financial institutions and government schemes

C) Foreign direct investment alone

D) Agricultural credit societies

17. The 'burden' of public debt is reduced if:

A) The interest rate on debt increases

B) The economy grows faster than the interest rate on debt

C) The government spends more on consumption

D) The debt is entirely external

18. Which of the following is a significant challenge related to public debt in India?

A) Insufficient borrowing capacity

B) High interest payments consuming a large part of government revenue

C) Lack of demand for government securities

D) Excessive foreign investment in government bonds

19. A 'productive' public debt is one that:

A) Is used to finance consumption expenditure

B) Is used to finance capital formation that generates future income

C) Is borrowed from foreign countries

D) Is repaid quickly

20. What is the primary role of the RBI in managing public debt in India?

A) Setting tax policies

B) Managing the issuance and redemption of government securities

C) Directly funding government projects

D) Regulating private sector borrowing

21. The 'Canon of Benefit' suggests that public expenditure should be:

A) Allocated based on population size

B) Equally distributed among all citizens

C) Proportionate to the benefits received by individuals

D) Sanctioned by the legislature

22. Which of the following is a true statement about the 'burden' of internal public debt?

A) It is entirely borne by the future generations

B) It is a transfer payment within the economy

C) It leads to a net outflow of resources from the country

D) It always results in a decrease in national income

23. The 'Growth of Public Expenditure' in India has been influenced by:

A) A decrease in the welfare state concept

B) Increased defense needs and emphasis on economic development

C) Reduced government intervention in the economy

D) A decline in urbanization

24. Which of the following is a primary objective of public borrowing in India?

A) To finance non-developmental expenditure

B) To cover revenue deficits and fund capital projects

C) To reduce the role of the private sector

D) To increase imports

25. When the government borrows from the public, it can lead to 'crowding out' by:

A) Increasing the availability of credit for private firms

B) Reducing the interest rate, thus encouraging private investment

C) Increasing interest rates, making borrowing more expensive for private firms

D) Decreasing the demand for money

26. The concept of 'burden of public debt' is most closely related to:

A) The total amount of money borrowed

B) The opportunity cost of resources used for debt servicing

C) The increase in GDP due to borrowing

D) The reduction in inflation due to government spending

27. Which of the following is a significant reason for the increase in public expenditure on social services in India?

A) Globalization trends

B) Constitutional mandate for welfare state and poverty reduction

C) Decreased population growth

D) Reduced private sector participation

28. The Fiscal Responsibility and Budget Management (FRBM) Act in India aims to:

A) Increase public debt levels

B) Enhance fiscal discipline and reduce the fiscal deficit

C) Eliminate taxation

D) Promote deficit financing indefinitely

29. Which institution plays a crucial role in providing long-term finance for industrial development in India?

A) Small Industries Development Bank of India (SIDBI)

B) Industrial Finance Corporation of India (IFCI)

C) Industrial Development Bank of India (IDBI)

D) All of the above

30. Development finance in India primarily aims to:

A) Reduce the fiscal deficit

B) Fund infrastructure projects and social sector programs

C) Increase the tax base

D) Control inflation

31. Which of the following is a major component of public borrowing in India?

A) External aid from international organizations

B) Issuance of government bonds and treasury bills

C) Corporate taxes

D) Disinvestment proceeds

32. In India, public borrowing is primarily managed by which institution?

A) Ministry of Finance

B) Reserve Bank of India (RBI)

C) Securities and Exchange Board of India (SEBI)

D) NITI Aayog

33. A Capital Levy as a method of debt repayment is:

A) A one-time tax on accumulated wealth

B) A tax on income earned from investments

C) A progressive tax on corporate profits

D) An increase in income tax rates

34. Amortization as a method of debt repayment implies:

A) Paying off the entire principal on maturity

B) Making periodic payments that include both interest and a portion of the principal

C) Establishing a separate fund for repayment

D) Converting the debt to a perpetual bond

35. The Sinking Fund Method of debt repayment involves:

A) Making regular payments of principal and interest

B) Setting aside a fund annually to redeem the debt

C) Repaying the debt all at once at maturity

D) Negotiating with creditors for reduced interest

36. Which method of public debt repayment involves replacing an old loan with a new one, often at a lower interest rate?

A) Sinking Fund Method

B) Conversion

C) Amortization

D) Capital Levy

37. The concept of 'Ricardian Equivalence' suggests that:

A) Government borrowing has no impact on aggregate demand

B) Public debt always leads to economic growth

C) Taxation is always preferable to borrowing

D) Interest rates rise with increased borrowing

38. Which of the following is a potential negative effect of a large public debt?

A) Increased private investment

B) Reduced interest rates

C) Crowding out of private investment

D) Lower government spending

39. An external public debt imposes a burden on the economy because:

A) It leads to inflation

B) It requires the transfer of real resources to foreign countries

C) It increases domestic investment

D) It reduces the need for taxation

40. When public debt is held domestically, the burden is primarily a transfer of purchasing power from:

A) The government to the public

B) Taxpayers to bondholders

C) One generation to another

D) The rich to the poor

41. The 'burden' of public debt is best understood as:

A) The total amount borrowed by the government

B) The interest payments made on the debt

C) The transfer of resources from the private sector to the government

D) The potential future taxation required to repay the debt

42. Which factor is primarily responsible for the significant growth of public expenditure in India post-independence?

A) Decline in private investment

B) Increased defense spending and social welfare programs

C) Reduced tax revenues

D) Shift towards a laissez-faire economic policy

43. The Canon of Sanction implies that public expenditure must be:

A) Economically efficient

B) Socially equitable

C) Authorized by a competent authority

D) Aligned with national goals

44. The Canon of Equity suggests that public expenditure should be:

A) Uniform across all regions

B) Progressive in nature, benefiting the poor more

C) Based on the principle of 'least cost, highest return'

D) Allocated based on political influence

45. The Canon of Economy in public expenditure emphasizes:

A) Maximizing social benefits from every unit of expenditure

B) Ensuring expenditure is approved by the legislature

C) Minimizing the cost of public services

D) Allocating funds based on population size

46. Which of the following is NOT considered a canon of public expenditure according to traditional principles?

A) Canon of Economy

B) Canon of Equity

C) Canon of Elasticity

D) Canon of Sanction

47. The 'Displacement Effect' in the context of public expenditure growth suggests that:

A) Private spending is displaced by public spending during crises

B) Public spending on defense displaces spending on welfare

C) Tax revenues decrease as public spending increases

D) Technological advancements displace traditional industries

48. Wagner's Law of Increasing State Activity posits that the growth of public expenditure is a consequence of:

A) Decreasing population growth

B) Urbanization and industrialization

C) Reduced government intervention

D) Lower levels of education

49. According to Musgrave, what are the three main functions of public finance?

A) Allocation, Distribution, and Stabilization

B) Revenue, Expenditure, and Debt

C) Regulation, Taxation, and Subsidy

D) Growth, Equity, and Efficiency

50. Which theory suggests that public expenditure should be limited to the extent that its marginal social benefit equals its marginal social cost?

A) Wagner's Law

B) Keynesian Theory

C) Musgrave's Theory of Public Finance

D) Pechman's Principle

Theories of public expenditure - canons of public expenditure, growth of public expenditure, public expenditure in India, public debt - burden and effects, methods of repayment, public borrowing and development finance in India - Question Bank