Free Public Finance MCQs with Answers

• A. a small deadweight loss and the burden of the tax would fall on the renter
• B. a large deadweight loss and the burden of the tax would fall on the landlora
• C. a large deadweight loss and the burden of the tax would fall on the renter.
• D. a small deadweight loss and the burden of the tax would fall on the landlord

Explanation: With relatively inelastic supply, the quantity of land changes little, so the tax creates a small deadweight loss.

• A. generate a deadweight loss that is unaffected by the time period over which it is measured
• B. cause a greater deadweight loss in the long run when compared to the short run
• C. None of these answers
• D. cause a greater deadweight loss in the short run when compared to the long run.

Explanation: Petrol demand and supply are generally more elastic over the long run because people can change vehicles, travel habits, and production…

• A. all taxpayers pay the same amount of tax
• B. taxes on all goods are levied at the same rate
• C. taxes are as low as possible
• D. the system comprises only lump sum taxes
• E. taxpayers with similar abilities to pay taxes pay the same amount

Explanation: Horizontal equity means treating taxpayers with equal ability to pay equally.

• A. Proportional tax rate
• B. average tax rate
• C. marginal tax rate
• D. vertical tax rate
• E. horizontal tax rate

Explanation: The marginal tax rate applies to the next dollar earned, so it directly affects decisions about working, saving, and investing.

• A. efficient
• B. progressive
• C. regressive
• D. proportional

Explanation: Vertical equity requires taxpayers with greater ability to pay to bear a greater tax burden, which is usually represented by a progressive…

• A. total taxes paid divided by total income
• B. the extra taxes paid on an additional dollar or income.
• C. the taxes paid by the marginal worker
• D. total income divided by total taxes paid

Explanation: The average tax rate measures the overall share of income paid in tax, calculated as total taxes divided by total income.

• A. a proportional tax
• B. a regressive tax
• C. an equitable tax
• D. a progressive tax

Explanation: A regressive tax takes a smaller percentage of income as income rises, so its burden falls relatively more heavily on low-income…

• A. an excess of government receipts over government spending.
• B. an equality of government spending and receipts.
• C. a surplus of government workers.
• D. an excess of government spending over government receipts.

Explanation: A budget surplus occurs when government receipts, mainly taxes and other revenues, exceed government spending.

• A. will have no impact on tax revenue.
• B. will always reduce tax revenue regardless of the prior size of the tax
• C. could increase tax revenue if the tax had been extremely high
• D. causes a market to become less efficient

Explanation: Under the Laffer-curve idea, a very high tax rate can reduce the tax base and discourage economic activity, so lowering it may increase…

• A. none of these answers
• B. Reagan curve
• C. Keynesian curve
• D. Laffer curve
• E. Henry George curve.

Explanation: The Laffer curve shows the relationship between the tax rate and government tax revenue.

• A. the unscrupulous to enter the underground economy
• B. the elderly to retire early.
• C. all the things described in these answers.
• D. second earners to stay home.
• E. workers to work fewer hoursEconomics

Explanation: Taxes on labor income reduce the reward from working and can encourage fewer working hours, early retirement, non-participation by second…

• A. reschedule debt
• B. get a loan from an international organization
• C. default on the loan
• D. any of the above

Explanation: A country facing unsustainable debt may restructure or reschedule payments, seek new official financing, or ultimately default.

• A. World Bank
• B. International Monetary Fund
• C. Council on Foreign Relations
• D. Organization of petroleum Exporting Countries

Explanation: The World Bank provides long-term development financing for projects such as schools, hospitals, transport and roads.

• A. Getting short term loans
• B. Getting long term loans
• C. Treasury bill in not credit instrument
• D. Treasury bill is a govt. tax bill

Explanation: A treasury bill is a short-term government debt instrument, normally issued to meet temporary financing needs and manage cash flow.

• A. Total expenditure is more than total revenue
• B. Current expenditure is more than current revenue
• C. Capital expenditure is more than capital revenue
• D. Total expenditure is more than current revenue

Explanation: A budgetary deficit occurs when the government's total expenditure exceeds its total revenue during a given period.

• A. An increase in indirect taxes
• B. An increase in managers salaries
• C. An increase in progressive taxation
• D. An increase in the rate of inflation

Explanation: Progressive taxation imposes higher tax rates on higher incomes, reducing post-tax income inequality.

• A. Bank loans
• B. The payment without work
• C. Tax payments
• D. Payments made to all factors of production

Explanation: A transfer payment gives income without a current exchange of goods or productive services, such as a pension or welfare benefit.

• A. Local tax
• B. Indirect tax
• C. Direct tax
• D. Rate

Explanation: A direct tax is imposed on, and normally paid by, the same person or entity on whom the legal burden falls, as with income tax.

• A. Income on which payment of tax is usually evaded
• B. Illegally earned money
• C. Money earned through underhand deals
• D. None of these

Explanation: Black money generally means income that is concealed to evade tax, so it remains outside the official tax records.

• A. Sales Tax
• B. General Tax
• C. Local Tax
• D. Gross Tax

Explanation: Sales tax is charged on the sale of goods and is collected from the customer by the retailer for payment to the government.