MCQs with answers on “India’s Fiscal Deficit: Causes, Consequences and Solutions”

What is the fiscal deficit?
- A) Total revenue of the government
- B) Difference between total expenditure and total revenue
- C) Surplus of government funds
- D) None of the above
  Answer: B) Difference between total expenditure and total revenue
Which of the following is a major cause of fiscal deficit in India?
- A) High tax revenues
- B) Excessive government spending
- C) Low public expenditure
- D) Decrease in interest rates
  Answer: B) Excessive government spending
What was India’s fiscal deficit as a percentage of GDP for the financial year 2021-22?
- A) 4.5%
- B) 6.9%
- C) 7.5%
- D) 8.0%
  Answer: B) 6.9%
Which of the following is a consequence of a high fiscal deficit?
- A) Increased public investment
- B) Inflationary pressures
- C) Strengthened currency
- D) Reduced borrowing costs
  Answer: B) Inflationary pressures
What is the main aim of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003?
- A) Increase government spending
- B) Reduce fiscal deficit and promote transparency
- C) Increase tax revenues
- D) Decrease interest rates
  Answer: B) Reduce fiscal deficit and promote transparency
Which government body is primarily responsible for preparing the budget in India?
- A) Reserve Bank of India
- B) Ministry of Finance
- C) Planning Commission
- D) NITI Aayog
  Answer: B) Ministry of Finance
Which of the following can be a solution to reduce the fiscal deficit?
- A) Increasing subsidies
- B) Cutting down on non-essential expenditure
- C) Increasing government salaries
- D) Reducing tax compliance
  Answer: B) Cutting down on non-essential expenditure
What does a higher fiscal deficit imply for government borrowing?
- A) Decreased borrowing
- B) Increased borrowing
- C) No impact on borrowing
- D) Borrowing becomes cheaper
  Answer: B) Increased borrowing
Which sector has been a significant contributor to the fiscal deficit in India due to subsidies?
- A) IT sector
- B) Manufacturing sector
- C) Agricultural sector
- D) Services sector
  Answer: C) Agricultural sector
How does fiscal deficit impact interest rates in the economy?
- A) It decreases interest rates
- B) It has no impact on interest rates
- C) It increases interest rates
- D) It stabilizes interest rates
  Answer: C) It increases interest rates
Which of the following is NOT a method to finance fiscal deficit?
- A) Borrowing from the public
- B) Issuing government bonds
- C) Printing new currency
- D) Increasing tax rates
  Answer: D) Increasing tax rates
What is one potential risk of financing the fiscal deficit through borrowing?
- A) Reduced inflation
- B) Increased crowding out of private investment
- C) Strengthening of the currency
- D) Increased savings
  Answer: B) Increased crowding out of private investment
Which of the following can lead to a sustainable fiscal deficit?
- A) Continuous increase in debt
- B) Productive use of borrowed funds
- C) Low economic growth
- D) High-interest payments
  Answer: B) Productive use of borrowed funds
Which of the following economic conditions can increase fiscal deficit?
- A) High economic growth
- B) Economic recession
- C) Decreased government spending
- D) Increased exports
  Answer: B) Economic recession
What is the impact of a fiscal deficit on foreign investment?
- A) It attracts foreign investment
- B) It has no impact on foreign investment
- C) It discourages foreign investment
- D) It guarantees foreign investment
  Answer: C) It discourages foreign investment
Which economic indicator is most commonly used to measure fiscal deficit?
- A) Consumer Price Index (CPI)
- B) Gross Domestic Product (GDP)
- C) Balance of Payments
- D) Unemployment Rate
  Answer: B) Gross Domestic Product (GDP)
The fiscal deficit can lead to which of the following long-term effects?
- A) Increased economic growth
- B) Higher inflation rates
- C) Lower interest rates
- D) Increased employment
  Answer: B) Higher inflation rates
What is a primary deficit?
- A) Fiscal deficit excluding interest payments
- B) Fiscal deficit including all expenditures
- C) Surplus after deducting capital expenditure
- D) None of the above
  Answer: A) Fiscal deficit excluding interest payments
Which of the following is a non-debt creating method to finance the fiscal deficit?
- A) Borrowing from the Reserve Bank of India
- B) Increasing tax revenues
- C) Issuing bonds
- D) Cutting subsidies
  Answer: B) Increasing tax revenues
Which type of government expenditure contributes most significantly to the fiscal deficit in India?
- A) Capital expenditure
- B) Revenue expenditure
- C) Development expenditure
- D) Public investment
  Answer: B) Revenue expenditure
What is the role of the Reserve Bank of India in managing the fiscal deficit?
- A) Increasing government spending
- B) Controlling inflation through interest rates
- C) Directly financing the fiscal deficit
- D) Regulating private banks
  Answer: B) Controlling inflation through interest rates
Which of the following is an indirect consequence of a high fiscal deficit?
- A) Improved infrastructure
- B) Decreased savings rate
- C) Increased public welfare
- D) Lower inflation
  Answer: B) Decreased savings rate
Which financial document provides information about the fiscal deficit?
- A) Economic Survey
- B) Union Budget
- C) Monetary Policy Statement
- D) Balance of Payments report
  Answer: B) Union Budget
What is one of the main objectives of the Fiscal Responsibility and Budget Management (FRBM) Act?
- A) Encourage public spending
- B) Promote fiscal discipline
- C) Increase subsidies
- D) Reduce tax rates
  Answer: B) Promote fiscal discipline
In which of the following ways can the government reduce its fiscal deficit?
- A) Increasing government salaries
- B) Reducing unnecessary subsidies
- C) Increasing its own spending
- D) Allowing tax evasion
  Answer: B) Reducing unnecessary subsidies
Which sector is most sensitive to fiscal deficit implications due to high borrowing costs?
- A) Agricultural sector
- B) Industrial sector
- C) Service sector
- D) Infrastructure sector
  Answer: D) Infrastructure sector
Which of the following factors can lead to an increase in government revenue?
- A) Lowering tax rates
- B) Enhancing tax compliance
- C) Increasing subsidies
- D) Reducing public sector jobs
  Answer: B) Enhancing tax compliance
Fiscal deficit financing can lead to which of the following economic conditions?
- A) Stagnation
- B) Economic growth
- C) Deflation
- D) Currency appreciation
  Answer: A) Stagnation
Which of the following can be classified as a capital expenditure?
- A) Payment of salaries
- B) Infrastructure development
- C) Purchase of office supplies
- D) Payment of subsidies
  Answer: B) Infrastructure development
What is the ideal fiscal deficit target set by the Indian government as per the FRBM Act?
- A) 2%
- B) 3%
- C) 4%
- D) 5%
  Answer: B) 3%

These questions and answers should provide a comprehensive overview of the topic, allowing for better preparation for the Civil Services Examination on India’s fiscal deficit.

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