Q1. With reference to tax expenditure, consider the statements:
- Tax expenditure refers to costs incurred by the government in collecting taxes.
- It represents opportunity cost of reduced tax rates or tax breaks.
- It includes revenue loss due to exemptions, deductions, rebates.
- It reduces fiscal deficit by minimizing direct government spending.
Which of the above statements is/are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Correct Answer: (c) 2 and 3 only
Explanation:
- Tax expenditure = revenue loss from concessions to promote certain sectors/activities.
- Does not reduce fiscal deficit.
Q2. Consider the following statements about Fiscal Responsibility and Budget Management (FRBM) Act:
- It mandates the government to maintain fiscal discipline.
- It fixes limits on fiscal deficit and total borrowing.
- It applies to both Centre and States equally.
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Correct Answer: (a) 1 and 2 only
Explanation:
- FRBM Act 2003 → Centre’s fiscal discipline, targets for fiscal deficit, revenue deficit.
- States adopt similar legislation individually, not automatically under FRBM Act.
Q3. Which of the following are included in fiscal deficit?
- Revenue deficit
- Capital expenditure
- Borrowings from RBI for monetizing deficit
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Correct Answer: (d) 1, 2 and 3
Explanation:
- Fiscal deficit = total borrowing requirement of the government = Revenue deficit + Capital expenditure + Net borrowing.
Q4. Which of the following are functions of the Reserve Bank of India (RBI)?
- Issuing currency
- Acting as banker to the government
- Regulation of banks and financial institutions
- Controlling fiscal policy
(a) 1, 2 and 3 only
(b) 1, 3 and 4 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4
Correct Answer: (a) 1, 2 and 3 only
Explanation:
- RBI → currency issuance, government banker, lender of last resort, monetary policy.
- Fiscal policy = responsibility of government, not RBI.
Q5. Consider the following statements:
- Monetary policy in India is aimed at controlling inflation and stabilizing the currency.
- Repo rate is the rate at which RBI lends to commercial banks.
- Reverse repo rate is the rate at which RBI borrows from commercial banks.
Which of the above statements is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) 1 and 3 only
Correct Answer: (c) 1, 2 and 3
Explanation:
- Repo = RBI → banks; Reverse repo = banks → RBI; both tools regulate liquidity and inflation.
