1. Fiscal policy refers to:
A) Money supply control
B) Government’s revenue and expenditure decisions
C) Credit regulation
D) Foreign trade policy
Answer: B
Explanation: Fiscal policy uses taxation and spending to influence the economy.
2. Who formulates fiscal policy in India?
A) RBI
B) SEBI
C) Ministry of Finance
D) NITI Aayog
Answer: C
Explanation: The Finance Ministry prepares fiscal policy through budgetary measures.
3. The main instruments of fiscal policy are:
A) Taxation and public expenditure
B) Repo rate and CRR
C) Inflation targeting
D) FDI policy
Answer: A
4. A budget deficit occurs when:
A) Revenue > Expenditure
B) Expenditure > Revenue
C) Tax = Expenditure
D) None
Answer: B
5. Expansionary fiscal policy is used during:
A) Inflation
B) Depression/recession
C) Balance of payments surplus
D) None
Answer: B
Explanation: Government increases spending or reduces taxes to boost demand.
6. Contractionary fiscal policy is used during:
A) High inflation
B) Recession
C) Deflation
D) Stagnation
Answer: A
7. Direct taxes include:
A) GST
B) Excise duty
C) Income tax
D) Customs duty
Answer: C
8. Indirect taxes include:
A) Corporate tax
B) Income tax
C) Wealth tax
D) GST
Answer: D
9. Fiscal deficit means:
A) Total expenditure – (Revenue receipts + Non-debt receipts)
B) Revenue expenditure – Revenue receipts
C) Capital receipts – Capital expenditure
D) None
Answer: A
10. Which of the following is NOT a fiscal policy tool?
A) Government expenditure
B) Repo rate
C) Taxation
D) Borrowing
Answer: B
Explanation: Repo rate is a monetary policy tool.
11. Budgetary policy is the same as:
A) Monetary policy
B) Fiscal policy
C) Trade policy
D) None
Answer: B
12. Disinvestment is a part of:
A) Fiscal policy
B) Monetary policy
C) Foreign policy
D) Trade policy
Answer: A
13. “Deficit financing” means:
A) Printing of new currency notes by RBI to meet deficit
B) Raising taxes
C) Increasing imports
D) Borrowing from foreign governments
Answer: A
14. A revenue deficit implies:
A) Revenue expenditure > Revenue receipts
B) Capital expenditure > Capital receipts
C) Fiscal deficit – Primary deficit
D) None
Answer: A
15. Primary deficit = Fiscal deficit – ?
A) Revenue deficit
B) Interest payments
C) Tax revenue
D) Borrowing
Answer: B
16. When government expenditure is greater than income, it leads to:
A) Surplus budget
B) Balanced budget
C) Deficit budget
D) None
Answer: C
17. Which of the following budgets promotes economic equality?
A) Surplus budget
B) Balanced budget
C) Deficit budget
D) Progressive taxation budget
Answer: D
18. Fiscal consolidation refers to:
A) Increasing fiscal deficit
B) Reducing fiscal deficit
C) Increasing revenue deficit
D) None
Answer: B
19. The FRBM Act in India aims to:
A) Control inflation
B) Reduce fiscal deficit and debt
C) Promote exports
D) Encourage FDI
Answer: B
20. Which of the following is a capital receipt?
A) Corporate tax
B) Income tax
C) Disinvestment proceeds
D) Customs duty
Answer: C
21. An example of expansionary fiscal policy is:
A) Increasing direct taxes
B) Increasing indirect taxes
C) Increasing public expenditure
D) Reducing subsidies
Answer: C
22. Counter-cyclical fiscal policy means:
A) Cutting expenditure in recession
B) Increasing taxes in depression
C) Moving against the economic cycle
D) None
Answer: C
Explanation: Govt spends more in recession and cuts spending in boom.
23. In India, fiscal policy is presented through:
A) RBI report
B) Union Budget
C) Finance Commission
D) NITI Aayog document
Answer: B
24. Which tax is progressive in nature?
A) GST
B) Excise duty
C) Income tax
D) Customs duty
Answer: C
25. Which type of taxation reduces income inequality?
A) Proportional
B) Progressive
C) Regressive
D) Indirect
Answer: B
26. Which body recommends the distribution of financial resources between the Centre and the States in India?
A) RBI
B) Finance Commission
C) NITI Aayog
D) Planning Commission
Answer: B
Explanation: The Finance Commission (Article 280) decides vertical & horizontal sharing of taxes.
27. Which of the following is NOT a component of fiscal deficit?
A) Government borrowing
B) Interest payments
C) Disinvestment proceeds
D) Government expenditure
Answer: C
Explanation: Fiscal deficit does not include disinvestment proceeds, which are capital receipts.
28. A high fiscal deficit usually leads to:
A) Lower inflation
B) Higher inflation
C) Zero inflation
D) No effect
Answer: B
Explanation: Excessive deficit financing increases money supply → inflation.
29. Fiscal drag refers to:
A) Automatic increase in tax revenue during economic growth
B) Fall in revenue deficit
C) Fall in fiscal deficit
D) None
Answer: A
Explanation: When income rises, progressive tax pulls more revenue automatically.
30. Which of the following can reduce fiscal deficit?
A) Higher subsidies
B) Higher public expenditure
C) Higher disinvestment receipts
D) Tax cuts
Answer: C
31. Primary deficit excludes:
A) Capital expenditure
B) Revenue receipts
C) Interest payments
D) Fiscal deficit
Answer: C
32. Which deficit indicates the gap between government’s current income and expenditure?
A) Revenue deficit
B) Fiscal deficit
C) Primary deficit
D) Budget deficit
Answer: A
33. Which of the following is considered inflationary financing?
A) External borrowing
B) Printing of new currency
C) Higher FDI
D) Disinvestment
Answer: B
34. The concept of “Functional Finance” in fiscal policy was given by:
A) Keynes
B) Abba Lerner
C) Milton Friedman
D) Adam Smith
Answer: B
Explanation: Lerner suggested govt should use fiscal policy for full employment, not just balanced budgets.
35. Which of the following statements is correct?
A) Fiscal policy is more effective in a developing country
B) Monetary policy is more effective in a developing country
C) Both are equally effective
D) Neither is effective
Answer: A
Explanation: Fiscal policy directly impacts investment and development.
36. The largest component of revenue expenditure in India is:
A) Subsidies
B) Defense
C) Interest payments
D) Education
Answer: C
37. In India, the fiscal deficit target under FRBM Act (later amended) was originally:
A) 1% of GDP
B) 3% of GDP
C) 5% of GDP
D) 6% of GDP
Answer: B
38. “Twin deficit problem” refers to:
A) Fiscal deficit and Current account deficit
B) Revenue deficit and Fiscal deficit
C) Primary deficit and Fiscal deficit
D) Fiscal deficit and Budget deficit
Answer: A
39. Crowding-out effect occurs when:
A) Govt borrowing reduces private sector investment
B) Govt borrowing increases private investment
C) Govt reduces subsidies
D) None
Answer: A
40. Counter-cyclical fiscal policy in recession requires:
A) Cutting govt expenditure
B) Increasing taxes
C) Increasing expenditure & cutting taxes
D) Printing less money
Answer: C
41. The type of budget where government expenditure = government receipts is called:
A) Deficit budget
B) Surplus budget
C) Balanced budget
D) None
Answer: C
42. Which one of the following is NOT an objective of fiscal policy?
A) Price stability
B) Full employment
C) Balanced regional development
D) Controlling foreign exchange rate directly
Answer: D
43. What is “Fiscal Federalism”?
A) Sharing of monetary policy between Centre and States
B) Sharing of fiscal powers between Centre and States
C) RBI’s independence from govt
D) None
Answer: B
44. The component of the budget which leads to asset creation is:
A) Revenue expenditure
B) Revenue receipts
C) Capital expenditure
D) None
Answer: C
45. During inflation, which fiscal measure is suitable?
A) Increase govt expenditure, reduce taxes
B) Reduce govt expenditure, increase taxes
C) Increase subsidies
D) Increase transfer payments
Answer: B
46. In India, fiscal year is from:
A) January to December
B) April to March
C) July to June
D) May to April
Answer: B
47. Which of the following is NOT a revenue receipt?
A) Corporate tax
B) Income tax
C) Borrowings
D) GST
Answer: C
48. Fiscal deficit leads to:
A) Fall in aggregate demand
B) Rise in aggregate demand
C) No change in demand
D) Fall in money supply
Answer: B
49. Which of the following is an anti-recessionary fiscal policy measure?
A) Reducing govt expenditure
B) Increasing indirect taxes
C) Increasing govt expenditure
D) Reducing subsidies
Answer: C
50. In India, “Zero-Base Budgeting” was introduced first in:
A) 1969
B) 1976
C) 1985
D) 1991
Answer: B
Explanation: Introduced by J. Chidambaram in the Department of Science & Technology in 1976.
51. Monetary policy refers to:
A) Govt’s spending and taxation decisions
B) RBI’s control over money supply and credit
C) Foreign trade measures
D) Industrial policy decisions
Answer: B
Explanation: In India, RBI formulates monetary policy to regulate liquidity, inflation, and credit supply.
52. Who formulates monetary policy in India?
A) Ministry of Finance
B) RBI
C) SEBI
D) NITI Aayog
Answer: B
Explanation: The Reserve Bank of India frames and implements monetary policy.
53. Monetary policy is announced by:
A) Finance Minister
B) RBI Governor
C) President
D) Prime Minister
Answer: B
Explanation: RBI Governor announces the policy decisions of the Monetary Policy Committee.
54. The type of monetary policy used to control inflation is:
A) Expansionary
B) Contractionary
C) Neutral
D) None
Answer: B
Explanation: Contractionary (tight) policy reduces money supply to control rising prices.
55. The type of monetary policy used to fight recession is:
A) Contractionary
B) Expansionary
C) Neutral
D) None
Answer: B
Explanation: Expansionary policy lowers interest rates and increases liquidity to boost demand.
56. Quantitative tools of monetary policy affect:
A) Credit to specific sectors
B) Credit supply in the whole economy
C) Only inflation
D) None
Answer: B
Explanation: Quantitative tools (Repo, CRR, SLR, OMO) regulate overall liquidity.
57. Qualitative tools of monetary policy affect:
A) Volume of credit
B) Direction of credit to specific uses
C) Tax collection
D) Subsidies
Answer: B
Explanation: Qualitative measures (credit rationing, margin requirements) channel credit to priority areas.
58. Repo rate means:
A) Rate at which banks lend to RBI
B) Rate at which RBI lends to banks (short-term)
C) Rate of return on govt bonds
D) Reverse of bank rate
Answer: B
Explanation: Repo = repurchase option; RBI gives funds to banks against securities.
59 . Reverse Repo Rate means:
A) Rate at which banks lend to customers
B) Rate at which RBI borrows from commercial banks
C) Rate on deposits with banks
D) None
Answer: B
Explanation: Reverse Repo absorbs liquidity from the system.
60. Bank Rate is:
A) Long-term lending rate by RBI to banks
B) Repo + CRR
C) Rate of savings account
D) None
Answer: A
Explanation: Bank rate = rate at which RBI provides long-term funds to banks.
61. CRR (Cash Reserve Ratio) means:
A) % of deposits banks keep as cash with RBI
B) % of deposits lent to priority sector
C) Rate of interest on borrowings
D) None
Answer: A
Explanation: CRR is a tool to control liquidity; kept in cash with RBI.
62. SLR (Statutory Liquidity Ratio) refers to:
A) % of deposits kept with RBI
B) % of deposits invested in liquid assets like cash, gold, govt securities
C) Ratio of loans to deposits
D) None
Answer: B
Explanation: SLR ensures banks maintain a buffer in approved securities.
63. Open Market Operations (OMO) mean:
A) RBI buying & selling shares
B) RBI buying & selling govt securities
C) RBI buying & selling forex only
D) None
Answer: B
Explanation: OMOs adjust liquidity in the system.
64. Which is a quantitative tool of monetary policy?
A) Repo rate
B) Credit rationing
C) Margin requirements
D) Direct action
Answer: A
Explanation: Repo is a general (quantitative) liquidity control tool.
65. Which is a qualitative tool of monetary policy?
A) CRR
B) SLR
C) Credit rationing
D) OMO
Answer: C
Explanation: Qualitative tools guide credit to specific sectors.
66. Expansionary monetary policy will:
A) Increase repo and CRR
B) Decrease repo and CRR
C) Increase taxation
D) None
Answer: B
Explanation: Lower rates and reserves → more lending → more demand.
67. Tight monetary policy means:
A) High interest rates, less liquidity
B) Low interest rates, more liquidity
C) Balanced budget
D) None
Answer: A
68. The ultimate aim of monetary policy in India is:
A) Control inflation and support growth
B) Maximize exports
C) Control unemployment only
D) None
Answer: A
69. Liquidity Adjustment Facility (LAF) is operated through:
A) Repo and Reverse Repo
B) Bank Rate
C) SLR
D) CRR
Answer: A
Explanation: LAF = short-term liquidity adjustment tool via repo window.
70. MSF (Marginal Standing Facility) is:
A) Public borrowing from govt
B) Banks borrowing overnight from RBI at a higher rate than repo
C) Corporates borrowing from RBI
D) None
Answer: B
71. Monetary policy in India is reviewed by:
A) Monetary Policy Committee (MPC)
B) RBI Governor alone
C) Finance Minister
D) NITI Aayog
Answer: A
Explanation: Since 2016, MPC decides repo rate.
72. The MPC consists of:
A) 3 members only
B) 6 members (3 RBI + 3 Govt nominees)
C) 5 members (all RBI)
D) 4 members
Answer: B
73. Inflation target in India (till March 2026) is:
A) 2% ± 1%
B) 4% ± 2%
C) 6% ± 3%
D) 5% ± 1%
Answer: B
Explanation: Flexible target band = 2%–6% with 4% midpoint.
74. Who decides the repo rate in India?
A) RBI Governor
B) Finance Minister
C) Monetary Policy Committee (MPC)
D) Prime Minister
Answer: C
75. Which institution controls monetary policy in India?
A) Finance Commission
B) Ministry of Finance
C) Reserve Bank of India
D) NITI Aayog
Answer: C
Explanation: RBI manages monetary policy under RBI Act, 1934.
76. Fiscal policy in India is presented annually in:
A) RBI Bulletin
B) Union Budget
C) Five-Year Plan
D) Economic Survey
Answer: B
Explanation: Fiscal policy decisions are reflected in the Union Budget.
77. Who presents the Union Budget in Parliament?
A) RBI Governor
B) Finance Minister
C) Prime Minister
D) President
Answer: B
78. The Economic Survey is published by:
A) RBI
B) Ministry of Finance
C) SEBI
D) NITI Aayog
Answer: B
Explanation: It provides analysis of economic performance before the Union Budget.
79. Which is NOT a fiscal policy instrument?
A) Subsidies
B) Taxation
C) Repo rate
D) Public expenditure
Answer: C
Explanation: Repo rate is a monetary tool.
80. Which committee recommended inflation targeting in India?
A) Narasimham Committee
B) Urjit Patel Committee
C) Rangarajan Committee
D) Kelkar Committee
Answer: B
81. The flexible inflation targeting framework was adopted in India in:
A) 2014
B) 2015
C) 2016
D) 2017
Answer: C
82. The current inflation target band in India is:
A) 2–4%
B) 2–6%
C) 3–7%
D) 1–5%
Answer: B
83. The Fiscal Responsibility and Budget Management (FRBM) Act was passed in:
A) 1991
B) 1998
C) 2003
D) 2008
Answer: C
84. The main aim of the FRBM Act is:
A) Control inflation
B) Reduce fiscal deficit & government debt
C) Increase tax rates
D) Encourage exports
Answer: B
85. Which of the following is an expansionary monetary policy measure?
A) Increasing repo rate
B) Reducing repo rate
C) Increasing CRR
D) Increasing SLR
Answer: B
86. In India, “Ways and Means Advances (WMA)” is related to:
A) Short-term borrowing by govt from RBI
B) Long-term borrowing from IMF
C) Credit to industries
D) None
Answer: A
87. In case of inflation, the suitable policy mix is:
A) Expansionary fiscal + Expansionary monetary
B) Contractionary fiscal + Contractionary monetary
C) Expansionary fiscal + Tight monetary
D) None
Answer: B
88. “Twin deficit problem” refers to:
A) Fiscal deficit + Revenue deficit
B) Fiscal deficit + Current account deficit
C) Fiscal deficit + Primary deficit
D) Budget deficit + Trade deficit
Answer: B
89. Which year was India’s fiscal deficit the highest in recent times due to COVID-19?
A) 2018–19
B) 2019–20
C) 2020–21
D) 2021–22
Answer: C
Explanation: Fiscal deficit touched ~9.2% of GDP in 2020–21.
90. Who chairs the Monetary Policy Committee (MPC)?
A) Finance Minister
B) RBI Governor
C) Prime Minister
D) Chief Economic Advisor
Answer: B
91. Which instrument directly controls inflation?
A) Repo rate
B) GST
C) Import duties
D) Disinvestment
Answer: A
92. Fiscal policy that reduces taxes and increases govt spending is known as:
A) Neutral policy
B) Expansionary policy
C) Contractionary policy
D) None
Answer: B
93. The government’s largest revenue source in India (2023–24) is:
A) Non-tax revenue
B) Borrowings
C) GST
D) Corporate tax
Answer: C
Explanation: GST has overtaken corporate tax as the largest revenue source.
94. Which instrument is used by RBI to absorb excess liquidity?
A) Repo
B) Reverse Repo
C) CRR reduction
D) Deficit financing
Answer: B
95. A “surplus budget” is usually adopted when:
A) Inflation is high
B) Deflation exists
C) Unemployment rises
D) None
Answer: A
96. Who decides the inflation target in India?
A) RBI alone
B) Finance Ministry in consultation with RBI
C) Parliament
D) NITI Aayog
Answer: B
97. Which tax is considered a counter-cyclical tool of fiscal policy?
A) Income tax (progressive tax)
B) GST
C) Customs duty
D) Corporate tax (flat rate)
Answer: A
Explanation: Progressive tax automatically reduces inequality and stabilizes demand.
98. In India, fiscal policy is more effective than monetary policy because:
A) Tax and spending affect growth directly
B) RBI is not independent
C) Foreign sector is large
D) None
Answer: A
99. Which is the correct policy mix for recession?
A) Expansionary fiscal + Expansionary monetary
B) Contractionary fiscal + Tight monetary
C) Expansionary fiscal + Tight monetary
D) Contractionary fiscal + Expansionary monetary
Answer: A
Explanation: In recession, govt must spend more and RBI must increase liquidity.
100. The main objectives of monetary policy in India are:
A) Price stability
B) Economic growth
C) Employment generation
D) All of the above
Answer: D
Explanation: RBI’s monetary policy has multiple goals – stability, growth, employment, and financial stability.