MCQ for CA Intermediate FMECO - SECTION B - ECONOMICS FOR FINANCE - Chapter 2 - PUBLIC FINANCE

Sample Multiple Choice Questions (MCQ's) for CA Intermediate - Paper 8 - FINANCIAL MANAGEMENT & ECONOMICS FOR FINANCE - SECTION B - ECONOMICS FOR FINANCE - Chapter 2: PUBLIC FINANCE - For Practice relevant for May/November 23 Examinations

 

UNIT 1: FISCAL FUNCTIONS: AN OVERVIEW

Q1. Macroeconomic stabilization may be achieved through

  1. Free market economy
  2. Fiscal policy
  3. Monetary policy
  4. (b) and (c) above

Answer: 1

Q2. Which of the following policies of the government fulfils the redistribution function 

  1. Parking the army on the northern borders of the country
  2. Supply of medicines at subsidized prices to the poor people
  3. Controlling the supply of money through monetary policy
  4. None of the above

Answer: 2

Q3. The justification for government intervention is best described by

  1. The need to prevent recession and inflation in the economy
  2. The need to modify the outcomes of private market actions
  3. The need to bring in justice in distribution of income and wealth
  4. All the above 

Answer: 4

Q4. When the government decides to produce fertilizers and supply them to the agriculturists, it aims 

  1. to achieve equity and fairness to the agriculturists
  2. to influence the way resources are allocated in the economy
  3. to ensure higher profits to agriculturists
  4. to make greater profits for the public sector 

Answer: 2

Q7. The allocation and distribution functions are primarily:

  1. Micro-economic functions
  2. Macro-economic functions
  3. both micro as well as macro-economic functions
  4. aimed at bringing in price stability and economic growth

Answer: 1

 

UNIT 2: MARKET FAILURE

Q1. ‘Market failure’ occurs

  1. when public goods are not sufficiently provided by public sector
  2. the market fails to allocate resources efficiently and therefore market outcomes become inefficient
  3. people are not willing to pay and want to free ride
  4. (a) and (b) above  

Answer: 2

Q2. Markets fail because 

  1. externalities are not accounted for in pricing and quantity decisions of firms 
  2. most often the prerequisites of competition are unlikely to be present in an economy
  3. prices fail to reflect the true costs and benefits to the society
  4. all the above

Answer: 4

Q3. Market power

  1. makes price equal marginal cost and produce a positive external benefit on others
  2. can cause markets to be inefficient because it keeps price and output away from equilibrium of supply and demand
  3. makes the firms price makers and restrict output so as to make allocation inefficient
  4. (b) and(c) above

Answer: 4

Q4. Markets do not exist  

  1. for pure public goods
  2. for goods which have positive externalities
  3. for goods which have negative externalities
  4. none of the above 

Answer: 1

Q5. The unique feature of an externality is that it is

  1. initiated and experienced, not through the operation of the price system but affects an external agent  
  2. initiated and experienced, not through the operation of the price system, but outside the market
  3. initiated and experienced by the same entity, but causes decrease in social welfare
  4. causes decreases in social welfare through the system of prices prevailing in the market

Answer: 2

Q6. If a textile mill produces large amounts of negative externality, then which one of the following is possible?

  1. The output of textile is too little when compared to the socially optimal quantity
  2. The output of textile is too large when compared to the socially optimal quantity 
  3. The output of textile is not socially optimal as it is likely to be a regulated one 
  4. Any of the above  

Answer: 2

Q7. In case of a positive externality

  1. the social marginal cost will exceed private marginal cost
  2. the social marginal cost will be equal to private marginal cost
  3. the social marginal cost will be less than private marginal cost
  4. the social marginal cost has no relation to private marginal cost

Answer: 3

 

UNIT 3: GOVERNMENT INTERVENTIONS TO CORRECT MARKET FAILURE

Q1. A thermal power plant uses coal and creates pollution in an otherwise unpolluted area. Which of the following would ensure that a socially optimal output of electricity is produced?

  1. Where marginal private cost equals marginal private benefit.
  2. Where marginal private cost equals marginal social benefit.
  3. Where marginal social cost equals marginal private benefit.
  4. Where marginal social cost equals marginal social benefit.

Answer: 4

Q2. Which of the following statements is false?

  1. Tradable permits provide incentive to innovate 
  2. A subsidy on a good which has substantial positive externalities would reduce its cost and consequently price
  3. Substantial negative externalities are involved in the consumption of merit goods. 
  4. Merit goods are likely to be under-produced and under consumed through the market mechanism

Answer: 3

Q3. A Pigouvian subsidy

  1. cannot be present when externalities are present
  2. is a good solution for negative externality as prices will increase
  3. is not measurable in terms of money and therefore not practical
  4. may help production to be socially optimal when positive externalities are present

Answer: 2

Q4. If merit goods are provided free by the government

  1. The quantity demanded of merit good will be less than supply
  2. The quantity demanded of merit good will be equal to supply
  3. The quantity demanded of merit good is likely to be more than supply
  4. Any of the above can happen 

Answer: 3

Q5. Rules regarding product labelling 

  1. Seeks to correct market failure due to externalities
  2. Is a method of solving the problem of public good
  3. May help solve market failure due to information failure
  4. Reduce the problem of monopolies in the product market

Answer: 3

 

UNIT 4: FISCAL PROPERTY

Q1. If Real GDP is continuously declining and the rate of unemployment in the economy is increasing, the appropriate policy should be to

  1. Increase taxes and decrease government spending
  2. Decrease both taxes and government spending 
  3. Decrease taxes and increase government spending 
  4. Either ( a) or (c)

Answer: 3

Q2. Fiscal policy refers to 

  1. use of government spending, taxation and borrowing to influence the level of economic activity
  2. government activities related to use of government spending for supply of essential goods  
  3. use of government spending, taxation and borrowing for reducing the fiscal deficits  
  4. (a) and (b) above 

Answer: 1

Q3. During recession fiscal policy of the government should be directed towards

  1. Increasing the taxes and reducing the aggregate demand
  2. Decreasing taxes to ensure higher disposable income
  3. Increasing government expenditure and increasing taxes
  4. None of the above 

Answer: 2

Q4. Automatic stabilizers

  1. work towards stimulating aggregate spending during economic expansion and reducing aggregate spending during the recessionary phase.
  2. provide proportionally more disposable income available for consumption spending to households during expansion
  3. work towards stimulating aggregate spending during the recessionary phase and reducing aggregate spending during economic expansion.
  4. provide proportionally less disposable income available for consumption spending to households during contraction 

Answer: 3

Q5. Discretionary fiscal policy

  1. refers to the working of built-in stabilizers to change the levels of expenditure and taxes to influence the level of national output, employment and prices
  2. refers to how governments may directly as well as indirectly influence the level of taxes to attain export competitiveness 
  3. refers to deliberate policy actions on the part of the government to change the levels of expenditure and taxes to influence the level of national output, employment and prices
  4. refers to deliberate policy actions on the part of the government to change the composition of taxes to influence compliance  

Answer: 3

 

CA Intermediate FMECO - SECTION B - MCQ for Chapter 3 -   

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