Free Public Finance MCQs with Answers
406 Public Finance MCQs from Economics, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
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406 questions · page 13 of 21
- A. whether there is perfect or imperfect information
- B. who is legally obliged to pay the tax
- C. elasticities of demand and supply
- D. how many producers there are:
Explanation: When a tax can be shifted, its economic burden depends mainly on the relative elasticities of demand and supply.
Correct answer: elasticities of demand and supply- A. structure of the tax.
- B. ultimate distribution of a tax's burden
- C. behaviour of shifting the tax to another party
- D. measure of the impact the tax has on employment and output
Explanation: Tax incidence means who ultimately bears the economic burden after buyers and sellers adjust prices and quantities.
Correct answer: ultimate distribution of a tax's burden- A. a higher percentage of their income in taxes then low income people
- B. a lower percentage of their income in taxes than low income people
- C. the same percentage of their income in taxes as low income people all the taxes in the economy.
- D. all the taxes in the economy
Explanation: Under a progressive income tax, the average tax rate rises as income rises.
Correct answer: a higher percentage of their income in taxes then low income people- A. the tax rate you pay on any additional income that you earn.
- B. the total amount of tax you pay divided by your total income
- C. the additional tax you pay divided by your total income
- D. your total income divided by the total amount of tax you pay.
Explanation: The marginal tax rate applies to the next unit of income earned, whereas total tax divided by total income is the average tax rate.
Correct answer: the tax rate you pay on any additional income that you earn.- A. those will equal ability to pay should bear equal tax burdens.
- B. those who benefit the most from government service should bear the higher tax burden
- C. those with equal ability to pay should bear unequal burdens
- D. those with greater ability to pay should pay more
Explanation: Vertical equity compares taxpayers with different abilities to pay and requires those with greater ability to pay to bear a larger tax…
Correct answer: those with greater ability to pay should pay more- A. generates a smaller disincentive to work than most alternative anti-poverty policies.
- B. reduces the cost to the government of fighting poverty
- C. would not provide benefits to lazy people
- D. ensures that the poor actually receive what the government thinks they need does all these answers.
Explanation: A negative income tax supports low-income households through cash transfers while preserving some return from earning additional income…
Correct answer: generates a smaller disincentive to work than most alternative anti-poverty policies.- A. the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that as long as there is no theft then there is no need for governments to intervene and redistribute income.
- B. the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution
- C. the idea that people a veil of ignorance as policy as if behind a veil of ignorance as to what their circumstances might be in society, and the ignorant people should be looked after
- D. the idea that everyone in society should have an equal income
Explanation: Rawls’s veil of ignorance asks people to choose rules without knowing their future social position, making them especially concerned about…
Correct answer: the idea that people should consider policy as if behind a veil of ignorance as to what their circumstances might be in society, and the idea that people will then be particularly concerned about the possibility that they might find themselves at the bottom of the income distribution- A. all of these answers
- B. libertarianism
- C. utilitarianism
- D. none of these answers
Explanation: Libertarianism emphasizes property rights and voluntary, honestly acquired income, so it rejects compulsory redistribution from Mariam to…
Correct answer: libertarianism- A. poor people are excluded from most leisure and social activities
- B. the Pakistan benefit system makes being poor vary degrading
- C. if poor people earn more their benefits fall, making them no better off.
- D. in the Pakistan poor people are heavily taxed
Explanation: A poverty trap occurs when earning additional income causes means-tested benefits to be withdrawn, leaving the person little or no better…
Correct answer: if poor people earn more their benefits fall, making them no better off.- A. a means tested cash benefit
- B. a universal (social insurance based) benefit
- C. a benefit in kind
- D. none of the above
Explanation: Housing Benefit is generally paid as cash but restricted according to the claimant’s income and circumstances, so it is means-tested.
Correct answer: a means tested cash benefit- A. income tax
- B. VAT
- C. a tax on profits.
- D. inheritance tax
Explanation: VAT is an indirect tax because it is charged on spending and collected from businesses, although its burden is ultimately borne by…
Correct answer: VAT- A. benefits received tax
- B. progressive tax
- C. regressive tax
- D. proportional tax
Explanation: A regressive tax takes a smaller percentage of income as income rises, so its relative burden falls on higher-income households.
Correct answer: regressive tax- A. an equal tax
- B. a proportional tax
- C. a progressive tax
- D. a regressive tax
Explanation: A proportional tax applies the same tax rate to every level of income, so tax paid rises in proportion to income.
Correct answer: a proportional tax- A. those with equal ability to pay should bear unequal tax burdends.
- B. those who benefits the most from government services should bear the higher tax burden.
- C. those who benefit the most from government services should have the greatest voice in determining what gets produced
- D. those with equal ability to pay should bear equal tax burdens.
Explanation: Horizontal equity requires people with equal ability to pay to face equal tax burdens.
Correct answer: those with equal ability to pay should bear equal tax burdens.- A. all the income is received by the top 20% of the income distribution
- B. income is distributed equally
- C. the income is split equally between the top 20% and the rest of the distribution.
- D. one family has all the income and every one else has nothing.
Explanation: A Gini coefficient of 1 represents complete income inequality, where one household or person receives all income and everyone else…
Correct answer: one family has all the income and every one else has nothing.- A. a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more income for themselves and their families because doing so will mean they have to pay back the benefits they have previously received
- B. a situation in which workers are unable to find jobs.
- C. a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more because doing so will reduce the amount of benefit income to which they are entitled and increase the amount to tax
- D. a situation in which those receiving state benefits are discriminated against by employers and so find it more difficult to find jobs.
Explanation: A poverty trap occurs when withdrawing benefits and increasing taxes as earnings rise leaves a person little better off from working more.
Correct answer: a situation in which those receiving state benefits may be almost no better off if they choose to work more to earn more because doing so will reduce the amount of benefit income to which they are entitled and increase the amount to tax- A. benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits.
- B. in order to be eligible for benefits a recipient cannot have a job
- C. they make recipients more comfortable than most middle-class citizens.
- D. anti-poverty programs attract naturally lazy people to begin with.
Explanation: Benefits that are withdrawn rapidly as earnings rise create a high effective marginal tax rate.
Correct answer: benefits are reduced at such a high rate when recipients earn more income that there is little or no incentive to work once one is receiving benefits.- A. Such redistribution would mean that those who worked hard were no better off than those who were lazy and this would be unfair.
- B. such redistribution would not maximize the total income of all members of society
- C. Such redistribution would remove the incentive to work hard, so society's total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality income.
- D. such redistribution would amount to confiscation of honestly earned income from higher earners and so would be unjust.
Explanation: Rawls's maximin rule permits inequality when it makes the worst-off person better off than complete equality would.
Correct answer: Such redistribution would remove the incentive to work hard, so society's total income would fall, and so the least well off person would be worse off than they could be under a system in which there was some inequality income.- A. redistributing income from rich to poor because this is what the members of society would choose to do if they were behind a veil of ignorance
- B. redistributing income from rich to poor because due to the diminishing marginal utility of income, taking a pound from the rich reduces their utility by less than the gain in utility generated by giving a pound to the poor
- C. allowing each individual to maximize their own utility without interference from the government
- D. redistributing income from rich to poor because this would maximize the well-being of the worst-off person in society
Explanation: Utilitarianism uses total utility as its objective, and diminishing marginal utility means an extra pound usually benefits a poor person…
Correct answer: redistributing income from rich to poor because due to the diminishing marginal utility of income, taking a pound from the rich reduces their utility by less than the gain in utility generated by giving a pound to the poor- A. Maximize the total utility of society
- B. Maximize the well-being of the worst-off person in society
- C. minimize the difference between the rich and poor
- D. maximize the economic freedom of individuals by minimizing government interference in private decision making
- E. minimize the well-being of the best-off person in society
Explanation: Rawls's maximin criterion evaluates social arrangements by the position of the least advantaged member.
Correct answer: Maximize the well-being of the worst-off person in society