If the marginal propensity to consume (MPC) is 0.8, the simple expenditure multiplier is:
Multiplier = 1 / (1 - MPC) = 1 / 0.2 = 5.
Public Finance & Budgeting MCQs
The four main stages of the budget cycle are:
A typical budget cycle runs from preparation through approval and implementation to audit.
Under Article 80 of the Constitution of Pakistan, the Federal Government is required to:
Article 80 deals with the Annual Budget Statement.
The financial year of the Federal Government of Pakistan runs from:
Pakistan's fiscal year starts on 1 July and ends on 30 June.
The Federal Consolidated Fund of Pakistan is established under:
Article 78 provides for the Federal Consolidated Fund and the Public Account of the Federation.
Total expenditure is Rs. 1,000 billion, total revenue is Rs. 800 billion and interest payments are Rs. 120 billion. The primary deficit is:
Fiscal deficit = 1,000 - 800 = 200. Primary deficit = 200 - 120 = Rs. 80 billion.
Primary balance is the fiscal balance:
A primary surplus means non-interest revenue exceeds non-interest expenditure.
Public debt is best described as:
Deficits are flows; debt is the stock built up over time.
The crowding-out effect refers to:
Heavy government borrowing competes with private borrowers for funds.
Fiscal policy is the use of:
Monetary policy is controlled by the central bank; fiscal policy by the government.
A budget deficit occurs when:
The gap is financed by borrowing or other financing.
An example of an indirect tax is:
Indirect taxes are levied on goods or services and the burden can be shifted to consumers.
The ability-to-pay principle of taxation says that:
It supports progressive taxation.
The benefit principle of taxation says that:
User charges such as tolls follow the benefit principle.
Which of the following is NOT one of Adam Smith’s canons of taxation?
Smith's canons are equity (or equality), certainty, convenience and economy.
Tax incidence refers to:
Statutory burden and final burden can differ.
The Laffer curve shows the relationship between:
It suggests that beyond some rate, higher tax rates may reduce revenue.
According to Musgrave, the three functions of government in public finance are:
These are the resource allocation, income distribution and economic stabilization branches.
In a progressive tax system:
Higher income earners pay a higher proportion of income in tax.
In a regressive tax system:
Low-income earners pay a larger share of income than high-income earners.
A proportional (flat) tax:
The tax rate remains constant as income changes.
An example of a direct tax is:
A direct tax is levied directly on the person who bears the burden, e.g. income tax.
A pure public good is characterized by:
National defense is a classic example: one person's use does not reduce others' use and nobody can be excluded.
The free-rider problem arises mainly in the case of:
People can enjoy the benefits without paying, so markets under-provide public goods.
A positive externality is:
Examples include education and immunization.