Public Economics Questions and Answers

Answer: C

The Consolidated Fund of India holds all revenues received by the government, the loans it raises (by treasury bills, loans or ways and means advances) and its receipts from the recoveries of loans given. The Contingency Fund is for urgent unforeseen expenditure, and the Public Account holds money received in trust or as deposits. The answer is the Consolidated Fund of India, option C. The Public Account holds funds the government keeps as a banker, such as provident funds, and the Contingency Fund is a revolving fund of limited size.

Answer: A

Primary deficit is the fiscal deficit minus interest payments. The borrowing requirement of the government is its fiscal deficit, so the fiscal deficit is 15000 crore. Interest payments are 25 per cent of the revenue deficit.

\[ \text{Interest} = 0.25 \times 20000 = 5000\ \text{crore} \]

\[ \text{Primary deficit} = 15000 - 5000 = 10000\ \text{crore} \]

The value 15000 is the fiscal deficit itself, 5000 is the interest, and 20000 is the revenue deficit. The answer is 10000 crore, option A.

Answer: B

The key gives the social marginal benefit. Social marginal benefit is the private marginal benefit to the consumer plus any external benefit to others from consumption. The item says costs imposed on others, which would be related to the social marginal cost rather than the benefit, so the wording is loose. I cannot cite a source that proves the key wrong, so the key stands, option B. An externality in consumption means that the social benefit differs from the private benefit.

Answer: D

A capital receipt creates a liability or reduces an asset of the government. The sale of assets reduces the assets and so it is a capital receipt. Income tax and GST are tax revenue, and interest received on loans is a revenue receipt. The answer is sale of assets, option D.

Answer: B

A revenue deficit shows that the government's current (revenue) expenditure is greater than its revenue receipts, so it cannot meet its current expenditure out of its current revenue and must borrow for it. The fiscal deficit is the total borrowing need, and the primary deficit is the fiscal deficit minus interest payments. The answer is revenue deficit, option B.

Answer: A

A public policy is a goal oriented course of action of the government, which can be positive (to do something) or negative (not to do something) and it is general in application. It is not static, since policies are changed over time as the conditions change. The answer is static, option A.

Answer: A

A beekeeper's hives benefit the owners of nearby orchards, whose flowers are pollinated, without any payment. This is a benefit to third parties arising from production, so it is a positive production externality. The answer is option A.

Because the benefit is not priced the market produces too few hives, which is the case for a subsidy. The honey and orchard example was used by J. E. Meade in 1952.

Answer: C

The budgetary deficit is the total expenditure less the total receipts, that is the revenue receipts plus capital receipts (excluding borrowing in the usual definition). So the expression total expenditure minus revenue receipts plus capital receipts expresses the item as the key states. The answer is option C.

Answer: C

The intervention of the government either to expand or to reduce demand in the economy, to control inflation or unemployment, is the stabilisation function of the budget, as set out by Musgrave. The allocation function deals with public goods, and redistribution with income distribution. The answer is stabilisation, option C.

Answer: C

The key gives substantive policy for the New Education Policy. Substantive policies deal with what the government decides to do (such as education, health, transport), as against procedural policies, which deal with how it is done. Regulatory and redistributive policies are other types in the scheme. The answer is option C.