NCERT Class 12 Economics Chapter 5 Questions (MCQ, One-Word or Descriptive)
This page provides complete NCERT Class 12 Introductory Macroeconomics Chapter 5 questions, including MCQs, one-word and descriptive questions. All questions are extracted line-by-line from NCERT for full syllabus coverage and exam preparation.
This chapter explains the role of the government budget in a mixed economy, focusing on its three core functions : allocation, redistribution, and stabilisation.
The allocation function addresses the provision of public goods (non-rivalrous and non-excludable) that the market fails to supply due to the free-rider problem. The redistribution function uses progressive taxation and transfers to achieve a fairer income distribution, while the stabilisation function corrects fluctuations in aggregate demand to avoid unemployment or inflation.
The chapter also classifies government receipts into revenue receipts (tax and non-tax) and capital receipts (which create liabilities or reduce assets), and expenditure into revenue and capital expenditure. The chapter then introduces measures of government deficit : revenue deficit, fiscal deficit, and primary deficit : explaining their implications for borrowing, debt accumulation, and economic growth.
A significant portion is devoted to fiscal policy tools (government spending and taxation), the multiplier effect, and the balanced budget multiplier. It also discusses automatic stabilisers (like proportional taxes), discretionary fiscal policy, and the Ricardian equivalence debate on whether government debt burdens future generations. The chapter concludes with institutional frameworks like the FRBMA (2003) and the GST regime, emphasising fiscal discipline and tax reform in India.
Get MCQs, One-Liners, Descriptive and Assertion & Reason based questions and answers mapped to exact page numbers. Designed for effortless memorization for Boards & Civil Services.
Get MCQs, One-Liners, Descriptive and Assertion & Reason based questions and answers mapped to exact page numbers. Designed for effortless memorization for Boards & Civil Services.
Which of the following is an example of a public good?
A) ClothesB) CarC) National defenceD) Chocolate
View Answer
Correct Answer: National defence Reference: NCERT Page 67
Page 67
Public goods are non-excludable. This means:
A) Only rich people can use themB) One person’s consumption reduces availability for othersC) There is no feasible way to exclude non-payers from enjoying benefitsD) They are produced only by private sector
View Answer
Correct Answer: There is no feasible way to exclude non-payers from enjoying benefits Reference: NCERT Page 67
Page 67
Free-riders are people who:
A) Pay more taxesB) Enjoy benefits of public goods without payingC) Produce public goodsD) Export public goods
View Answer
Correct Answer: Enjoy benefits of public goods without paying Reference: NCERT Page 67
Page 68
Which of the following is a non-tax revenue receipt of the government?
A) Income taxB) Corporation taxC) Interest receipts on loans given by governmentD) Excise duty
View Answer
Correct Answer: Interest receipts on loans given by government Reference: NCERT Page 68
Page 68-69
Capital receipts of the government are those that:
A) Do not create any liabilityB) Are non-redeemableC) Create liability or reduce financial assetsD) Come only from taxes
If marginal propensity to consume (MPC) is 0.8, the government expenditure multiplier is:
A) 4B) 5C) 0.8D) 1.25
View Answer
Correct Answer: 5 Reference: NCERT Page 75
Page 75
If MPC is 0.8, the tax multiplier is:
A) 5B) -5C) -4D) 4
View Answer
Correct Answer: -4 Reference: NCERT Page 75
Page 75-76
The balanced budget multiplier is always equal to:
A) 0B) 1C) MPCD) 1/(1-MPC)
View Answer
Correct Answer: 1 Reference: NCERT Page 75-76
Page 77-78
Proportional income tax acts as an automatic stabiliser because:
A) It reduces government revenueB) It makes disposable income less sensitive to GDP fluctuationsC) It increases fiscal deficitD) It eliminates all business cycles
View Answer
Correct Answer: It makes disposable income less sensitive to GDP fluctuations Reference: NCERT Page 77-78
Page 79
Ricardian Equivalence argues that:
A) Deficits are always inflationaryB) Taxation and borrowing are equivalent means of financing expenditureC) Government should never borrowD) Debt always burdens future generations
View Answer
Correct Answer: Taxation and borrowing are equivalent means of financing expenditure Reference: NCERT Page 79
Page 81
According to FRBMA, fiscal deficit must be reduced to not more than what percent of GDP?
A) 5%B) 4%C) 3%D) 2%
View Answer
Correct Answer: 3% Reference: NCERT Page 81
Page 82
GST is a:
A) Direct taxB) Destination-based consumption taxC) Tax only on goodsD) Tax only on services
A) It does not allow Input Tax CreditB) It has multiple rates for same type of goodsC) It is a single comprehensive indirect tax with Input Tax Credit facilityD) It is levied only by state governments
View Answer
Correct Answer: It is a single comprehensive indirect tax with Input Tax Credit facility Reference: NCERT Page 82
Get MCQs, One-Liners, Descriptive and Assertion & Reason based questions and answers mapped to exact page numbers. Designed for effortless memorization for Boards & Civil Services.
What is the financial year period for the Indian government budget?Page 66
Reveal Answer
1 April to 31 March (Page 66)
Goods that are non-rivalrous and non-excludable are called?Page 67
Reveal Answer
Public goods (Page 67)
The person who enjoys benefits of a public good without paying is called a?Page 67
Reveal Answer
Free-rider (Page 67)
Taxes like personal income tax and corporation tax are classified as?Page 68
Reveal Answer
Direct taxes (Page 68)
Duties levied on goods produced within the country are called?Page 68
Reveal Answer
Excise taxes (Page 68)
Sale of shares of Public Sector Undertakings by the government is known as?Page 69
Reveal Answer
Disinvestment (Page 69)
Expenditure that does not create physical or financial assets is called?Page 69
Reveal Answer
Revenue expenditure (Page 69)
The excess of revenue expenditure over revenue receipts is called?Page 71
Reveal Answer
Revenue deficit (Page 71)
The difference between total expenditure and the sum of revenue receipts and non-debt creating capital receipts is called?Page 72
Reveal Answer
Fiscal deficit (Page 72)
Fiscal deficit minus net interest liabilities gives?Page 72
Reveal Answer
Primary deficit (Page 72)
The multiplier that measures the effect of a simultaneous equal increase in government spending and taxes on income is called?Page 75-76
Reveal Answer
Balanced budget multiplier (Page 75-76)
The tax system that acts as a shock absorber against GDP fluctuations is called?Page 77
Reveal Answer
Automatic stabiliser (Page 77)
The deliberate change in government spending and taxes to stabilise the economy is called?Page 77
Reveal Answer
Discretionary fiscal policy (Page 77)
The theory that taxation and borrowing are equivalent means of financing expenditure is known as?Page 79
Reveal Answer
Ricardian equivalence (Page 79)
The Act enacted in 2003 to ensure fiscal prudence in India is?Page 81
Reveal Answer
FRBMA (Fiscal Responsibility and Budget Management Act) (Page 81)
The single comprehensive indirect tax introduced in India from 1 July 2017 is?Page 82
Reveal Answer
GST (Goods and Services Tax) (Page 82)
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