Objective
Questions
I. Choose the correct alphabet only.
1. When expenditure exceeds total tax revenue, it is called:
a) Surplus budget b) Balanced budget c) Deficit budget
d) None of these
2. Which of the following is not a fiscal instrument?
a) Open market operations b) Public expenditure
c) Taxation
d) None of these
3. An increase in tax rate
when tax base expands represents: a) Progressive taxation b) Regressive
taxation c) Proportional taxation d) None of these
4. Which of the following is a measure of fiscal policy?
a) Public expenditure b) C.R.R.
c) S.L.R.
d) Bank rate
5. The main difference between Public and Private Finance is:
a) Adjustment of income-expenditure b) Satisfaction o human wants
c) Dissaving d) Borrowings
6. The First Finance Commission was appointed in the year:
a) 1952 b) 1950 c) 1951
d) 1949
7. Maximum Social Advantage is achieved when
a) Marginal Social Sacrifice = Marginal Social
Benefit
b) Total Social Sacrifice= Total Social Benefit
c) Average Social Sacrifice = Average Social
Benefit
d) Net Social Sacrifice = Net Social Benefit
8. In India, personal income tax is levied on individuals by:
a) Central Government b) State Government
d) None of these
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9. Income tax is based on the principle of:
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a) Ability to pay
|
b) Willingness to pay
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c) Benefits received
|
d) None of these
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10. The Principle of Maximum Social Advantage is associated with:
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a) Dalton
|
b) Pigou
|
c) Seligman
|
d) Hicks
|
|
11. Which is not the characteristic of a tax?
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a) No quid pro quo
|
b) Compulsory payment
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c) Non –compulsory payment
|
d) Punishment to tax evader
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12. Special assessment means:
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a) General tax on all people
|
b) Gift tax
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c) A tax for specific benefit conferred
|
d) None of these
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13. Who is the exponent of the law of increasing
state activities?
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a) Dalton
|
b) Wagner
|
c) Seligman
|
d) Musgrave
|
|
14. Maximum Welfare Principle of Budget Determination is associated
with
|
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a) Adam Smith
|
b) Edwin Seligman
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c) Hugh Dalton
|
d) Richard Musgrave
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15. The Kelkar Proposals are concerned with:
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a) Recommendations for reforms in the power sector
|
b) Recommendations for
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tax reforms
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c) Guidelines for the privatization of public
sector undertakings
|
d) None of the above
|
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a) Direct tax b) Indirect
tax c) Progressive tax d) None of these
17. In the case of direct tax, impact and incidence are on:
a) Different person b) Same person c) Sellers d) None of these
18. The direct violation of Tax law is called:
a) Tax evasion b) Tax avoidance c) Tax Rebate d) None of
these
19. The final resting place of the burden of tax is called:
a) Tax avoidance b) Tax evasion c) Impact d) Incidence
20. Incidence of tax refers to:
a) Initial resting place of the burden of tax
c) Both (a) and (b)
b) Final resting place of the burden of tax
d) None of these
21. Which of the following taxes is the most likely to be regressive?
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a) Sales tax on mobile phone
|
b) Excise duties on Kerosene
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c) Import duties on electronic goods
|
d) Entrainment tax
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22. Impact of tax refers to:
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a) Initial resting place of the burden of tax
|
b) Tax evasion
|
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c) The final money burden of tax
|
d) None of these
|
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23. Fiscal policy is the policy of:
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a) RBI
|
b) NABARD
|
c) Government
|
d) All of these
|
||
24. The following is an example of direct taxes:
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a) Sales tax
|
b) Income tax
|
c) Excise duties
|
d) Toll tax
|
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a) Proportional tax b) Progressive tax
c) Regressive tax d) None of these
26. Budget is an instrument of:
a) Monetary policy b) Fiscal policy
c) Trade policy d) Exchange rate policy
27. The concept of functional finance was developed by:
a) J.M. Keynes b) A.P. Lerner c) Kaldor
d) Pigou
28. In public finance shifting refers to:
a) Imposing tax
c ) Shifting of tax burden from one person to another
b) Avoiding of tax
d) None of these
29. The modern state is: a) Laissez –faire state
c) Aristocratic state
b) Welfare state
d) Police state
30. According to Musgrave
the major functions of public finance are: a) Allocative function b)
Distributive function c) Stabilisation function d) All the above
31. Who was the first to recommend the adoption of an expenditure tax
for India?
a) K.N. Raj b) Paul Krugman c) Raja J. Chelliah d) N. Kaldor
32. Which one of the
following taxes is levied by the State Government only? a) Entertainment tax b)
Corporation tax c )Wealth tax d) Income tax
33. The controlling authority of Government expenditure is:
a) RBI b) Planning Commission
d) Finance Commission
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34. A tax levied upon a firm as a percentage of its
value added
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a) Merit tax
|
b) VAT
|
c) Turnover tax
|
d) Sales tax
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35. A progressive tax weighs more heavily upon the
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a) Poor
|
b) Wage earners
|
c) Farmers
|
d) Rich
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36. The incidence of tax refers to:
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a) The level and rate of taxation
|
b) Who ultimately pays the tax
|
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c) The growth of taxation
|
d) The way in which tax is
collected
|
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37. Which tax cannot be shifted to others?
|
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a) Excise duty
|
b) Sales tax
|
c) Entertainment tax
|
d) Wealth tax
|
||
38. Fiscal Federalism refers to ….
(a) Sharing of political power between centre and
states
(b) Organising and implementing economic plans
(c) Division of economic functions and resources
among different layers of Govt.
(d) None of these
39. Principle of sound finance refers to …
(a) Maximum Government
spending
(b) Minimum Government
spending
(c) Revenue and expenditure
balanced at the minimum level
(d) None of these
40. The most important aim of fiscal policy in a developing country is
(a) economic stability
(b) economic development
(c) regional balance
(d) None of these
41. The income of the
government through all its sources is called
(a) Public expenditure
(c) Public finance
(d) none of these
42. Modvat means
(a) Modified value added tax (b) moderate value added tax
(c) Modest value added tax (d) modern value added tax
43. Primary deficit means:
(a) Fiscal deficit- Interestpayment (b)Revenue
deficit-interest payments
(c) Fiscal deficit+ revenue deficit (d) Budgetary deficit
44. Public Expenditure increases
(a) Interest rate (b) Employment
(c) Exports (d) Imports
45. Defict financing includes
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a) Borrowing from the Central Bank
|
b) Issues of new currency
by the
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Government
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C) Withdrawal of past accumulated cash balance by the government
|
d) All the
|
||
above
|
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46. The principle of Maximum Social Advantage is connected with
|
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(a) Taxation
|
(b) Expenditure
|
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(c) Public Debt
|
(d) Both (A) and (B)
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47. Which of the following does not form the basis of sound finance?
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(a) Say’s Law
|
(b) Assumption of full employment
|
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(c) Ricardian Equivalence Theorem
|
(d) Lerner’s Fundamental Rules
|
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48. In the case of relatively elastic demand, the money burden of tax
is on
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(a) More on seller
|
(b) More on buyer
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(c) Entirely on seller
|
(d) Entirely on buyer
|
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49. When the supply is more elastic, the money burden of tax is on
(a) More on seller
(b) More on buyer
(c) Entirely on seller
(d) Entirely on buyer
Answers
1. C
-Deficit Budget
|
13.
b-Wagner
|
27.
b-A.P. Learner
|
39.
c-revenue
|
2. a-
open market
|
14. d-
Richard
|
28.
c-shifting of tax
|
expenditure
balanced
|
operations
|
Musgrave
|
burden
from one
|
at the
minimum level
|
3.
a-progressive
|
15. b-
|
person
to another
|
40.b-economic
|
taxation
|
recommendations
for
|
29.
b-welfare state
|
development
|
4.a-
Public expenditure
|
tax
reforms
|
30.
d-all the above
|
41.
b-public revenue
|
5.
a-balance of income-
|
16.
b-indirect tax
|
31.
d-Kaldor
|
42.
a-modified value
|
expenditure
|
17. b-same
person
|
32.
a-entertainment
|
added
tax
|
6.
c-1951
|
18.
a-tax evasion
|
tax
|
43.
a-Fiscal deficit-
|
7.
a-Marginal Social
|
19.
d-incidence
|
33.
c-Ministry of
|
interest
|
Sacrifice=
Marginal
|
20.
b-final resting
|
Finance
|
44.
b-employment
|
Social
Benefit
|
place
of the burden of
|
34.
b-VAT
|
45.
d-all the above
|
8.
a-Central
|
tax
|
35.
d-Rich
|
46.
b-Expenditure
|
Government
|
21.
b-expenditures on
|
36.
b-who ultimately
|
47. d-
Lerner’s
|
9.
a-Ability to pay
|
Kerosene
|
pays
the tax
|
Fundamental
Rules
|
10.
a-Dalton
|
22.
a-initial resting
|
37.
c-entertainment
|
48. a-
More on seller
|
11.
c-Non-compulsory
|
place
of the burden of
|
tax
|
49. b-
More on buyer
|
payment
|
tax
|
38.
c-division of
|
|
12.
c-a tax for specific
|
23.
c-Government
|
economic
functions
|
|
benefit
conferred
|
24.
b-Income tax
|
and
resources among
|
|
25.
c-regressive tax
|
different
layers of
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26.
b-fiscal policy
|
Government
|
||
Objective Questions
Choose the correct alphabet only.
1. Which
theory states that a nation will tend to export commodities intensive in its
relatively abundant and cheap factor?
A) Heckscher-Ohlin theory
B)
Stolper-Samuelson theory
C)
Product cycle theory
D)
Intraindustry trade theory Answer: A
2. Which of
the following is a part of the Heckscher-Ohlin model that states international
trade will bring about equalization in the returns to homogeneous factors
across nations?
A) Factor-price equalization theorem
B)
Factor-proportions theory
C)
Factor-endowment theory
D)
Product cycle theory Answer: A
3. The
Heckscher-Ohlin theory is often referred to as: A) Factor-price equalization
theorem
B)
Factor-proportions theory
C)
Factor-endowment theory
D)
Both b and c
Answer:
D
4. Which of
the following states that a nation will export commodities intensive in its
relatively abundant and cheap factor and that international trade brings about
equalization in returns to homogeneous factors across countries:
A) Heckscher-Ohlin theory
B)
Stolper-Samuelson theorem
C)
Differentiated product theorem
D)
None of the above
Answer:
A
5. The
______________ hypothesizes that a portion of international trade is based on
the introduction of new products or processes:
A) specific-factors model
B)
technological gap model
C)
product cycle model
D)
real business cycle model Answer: B
7. In the
2-factor, 2 good Heckscher-Ohlin model, the two countries differ in A. tastes.
B. military
capabilities C. size
D.
relative availabilities of factors of production Answer: D
8. In the
2-factor, 2 good Heckscher- Ohlin model, a change from autarky (no trade) to
trade will benefit the owners of
A. capital.
B. the
relatively abundant factor of production C. the relatively scarce factor of
production
D. the relatively inelastic
factor of production
E. the factor of production with the largest elasticity of substitution
Answer: B
9. According
to the Heckscher-Ohlin model, the source of comparative advantage is a
country's
A. technology
B. advertising
C. human capital
D. factor
endowment
E. Both A
and B. Answer: D
10. As
opposed to the Ricardian model of comparative advantage, the assumption of
diminishing returns in the Heckscher-Ohlin model means that the probability is
greater that with trade
A.
countries will not be fully specialized in one product. B. countries will
benefit from free international trade.
C.
countries will consume outside their production possibility frontier. D.
comparative advantage is primarily supply related.
Answer: A
11. Starting
from an autarky (no-trade) situation with Heckscher-Ohlin model, if Country H
is relatively labor abundant, then once trade begins
A. wages and
rents should rise in H B. wages and rents should fall in H
C. wages
should rise and rents should fall in H. D. wages should fall and rents should
rise in H. Answer: C
12. Which of the following
is false (for the Heckscher-Ohlin model)?
A. Differences in
technologies could be the source of gains from trade.
B. Some groups may gain and
some may lose due to trade.
C. Gains for the
trade-related winners will tend to be larger than losses of losers.
D. None of the above.
Answer: A
13. Suppose that there are two
factors, capital and land, and that the United States is relatively land
endowed while the European Union is relatively capital-endowed. According to
the Heckscher-Ohlin model,
A. European
landowners should support US-European free trade.
B. European
capitalists should support US-European free trade.
C. all capitalists in both countries should support
free trade.
D. all
landowners should support free trade.
Answer: B
14. The Hechscher-Ohlin model
states that a country will have a comparative advantage in the good or service
whose production is relatively intensive in the ______ with which the country
is relatively abundant.
A. tastes.
B. technology
C.
factor of production D. opportunity cost Answer: C
15. One way
in which the Heckscher-Ohlin model differs from the Ricardo model of
comparative advantage is by assuming that __________ is (are) identical in all
countries.
A. factor
of production endowments
B. scale
economies
C. factor of production intensities
D. technology
Answer: D
16. According to the
Hecksher-Ohlin model, A. everyone automatically gains from trade
B. the scarce factor
necessarily gains from trade
C. the
gainers could compensate the losers and still retain gains. D. a country gains
if its exports have a high value added.
Answer: C
17. The
Heckscher-Ohlin model assumes that _____ are identical in all trading countries
A. Gross domestic products
B. technologies
C.
factor endowments D. Both A. and B. Answer: B
18. Transportation
costs include:
A)
Freight charges
B)
Warehousing costs
C)
Costs associated with loading and unloading
shipments
D)
All of the above
Answer: D
19. Which
economist laid the foundation for the factor endowment theory with his article
entitled “The Effect of Foreign Trade on the Distribution of Income”?
A) Eli
Heckscher B) Bertil Ohlin C) Alfred Marshal D) Raymond Vernon Answer: A
20. According
to the factor endowment theory, nations heavily endowed with labor will:
A)
Import more labor intensive goods
B)
Export more labor intensive goods
C)
Have an absolute advantage in labor intensive
goods
D)
Have a comparative advantage in capital
intensive goods Answer: B
21. Which of
the following states that the difference in relative factor abundance and
relative factor prices is the cause of the pretrade difference in relative
commodity prices between two nations?
A)
Stolper-Samuelson theorem B) Differentiated product theorem C) Heckscher-Ohlin
theorem D) None of the above
Answer: C
22. Assume
that Country A is relatively abundant in capital and relatively scarce in land.
According to the factor endowment theory, with free trade, the internal
distribution of income in Country A will change in favor of:
A) capital
C)
both capital and land
D)
neither capital nor land Answer: A
23. Assume
the cost of transporting computers from US to Japan is greater than the
pre-trade price difference for computers between US and Japan. Trade in
computers between US and Japan will:
A) be very profitable for
both parties
B) be a
breakeven proposition for both parties C) occur
D) not
occur Answer: D
24. For
trade to occur, the Heckscher-Ohlin model requires that:
A)
Both nations have identical tastes
B)
Both nations have exactly the same level of
technology
C)
Both nations only have broadly similar tastes
because the level of technology is not relevant
D)
both nations have broadly similar tastes and
technology
Answer:
D
25.
Mexico is relatively abundant in labor, while Canada is relatively abundant in
capital. In both nations, the production of televisions is relatively more
capital intensive than the production of corn. According to the factor
endowment theory, Mexico will have a(n):
A)
absolute advantage in the production of corn and
computers
B)
absolute advantage in the production of corn
C)
comparative advantage in the production of corn
D)
comparative advantage in the production of
computers Answer: C
26. A
product will be internationally trades as long as the pre-trade price
differential between the trading partners is:
A) equal to the
transportation cost of the good
B)
greater than the transportation cost of the good C) less than the
transportation cost of the good
D) none of the above Answer: B
27. Which of
the following is not an example of a capital rich nation?
A)
Canada
B)
Germany
C)
Bangladesh
D)
Italy
Answer:
C
28. Assume
both labor and capital are completely mobile, and a nation is capital
rich/labor scarce. In order to increase welfare, what kind of trade policy
should the government adapt?
A) Restrict all trade, because the standard of
living will decline and people will be worse off
B)
Only restrict trade that will make the real wage
fall, and allow trade that will not affect wages
C)
Not restrict trade, because the real wage will
eventually cycle back to the pre-trade value, eliminating any losses in the
standard of living
D)
Not restrict trade, because any decline in real
wages will be matched with an even larger gain by those who own capital
Answer:
D
29. Which of the following
are possible sources of bias for the Leontief paradox?
B)
Misclassification of factors such as natural
resources
C)
The inclusion of only physical capital in the
measure of capital
D)
All of the above
Answer: D
30. Which of
the following factors were not considered within the framework of the Leontief
paradox? A) Human capital
B)
Physical capital
C)
Natural resources
D)
Both A & C Answer: D
31. In the
real world, a reason factor-price equalization of labor does not completely hold
true is that: A) it is unrealistic to assume that there are no trade
restrictions
B)
although technology among most countries is the
same, workers are not able to make efficient use of it in every nation, thus
keeping factor prices from equalizing
C)
although labor is completely mobile it assumes
the value in the country to which it moved and thus has no effect on the
overall factor price of that country.
D)
None of the above
Answer:
A
32. With
______________, inputs increase proportionately more than the increase in
output. A) Increasing returns to scale
B)
Decreasing returns to scale
C)
Constant returns to scale
D)
International returns to scale Answer: B
33. With
______________, inputs increase in direct proportion to the increase in output.
A) increasing returns to scale
B)
decreasing returns to scale C) constant returns to scale D) international
returns to scale Answer: C
34. Some
forces that improve upon the inadequacies of the Heckscher-Ohlin model in
explaining basis for international trade are:
A) Economies of scale
B)
Product differentiation
C)
Technological differences
D)
All of the above Answer: D
35. With
______________, inputs increase proportionately less than the increase in
output. A) increasing returns to scale
B)
decreasing returns to scale C) constant returns to scale D) international
returns to scale Answer: A
36. Increasing
returns to scale generally exist because of:
A)
greater division of labor and labor
specialization
B)
specialized and productive machinery
C)
less and less expensive factors of production
D)
Both A and B
Answer:
D
37. Which of
the following is not an explanation for why high-income and labor-saving
products are most likely to be introduced in rich nations?
A) The opportunities for
doing so are the greatest in rich nations
B) Poor countries actually
prefer products and services associated with being low-income
C) The
development of new products requires proximity to markets so as to benefit from
consumer feedback in modifying the product
D) There is no need to provide service Answer: B
38.The
Heckscher-Ohlin model differs from the Ricardian model of Comparative Advantage
in that the former
A. has only two countries.
B. has only two products.
C. has two factors of
production.
D. has two production
possibility frontiers (one for each country).
Answer: C
39. According
to the theory of comparative advantage, which of the following is not a reason
why countries trade?
a.
Comparative advantage.
b. Costs are
higher in one country than in another. c. Prices are lower in one country than
in another.
d. Exports give a country a political advantage over other countries
that export less. Ans: d
40. According
to the theory of comparative advantage, countries gain from trade because
a. Trade makes firms behave
more competitively, reducing their market power.
b. All firms can take
advantage of cheap labor.
c. Output per worker in
each firm increases.
d. World
output can rise when each country specializes in what its does relatively best.
Ans: d
41. If
international trade takes place as a result of comparative advantage, it will
cause which of the following effects in the participating countries?
a. Inequality among
households will be reduced. b. All individuals in each country will be better
off.
c. The
average well-being of people in both countries will increase. d. Both countries
will grow faster over time.
Ans: c
42. The
existence of which type of dumping most likely constitutes the strongest
argument for the imposition of an antidumping duty?
a.
Predatory dumping b. Persistent dumping c. Sporadic dumping
d. All three types generate equally string arguments for the imposition
of an antidumping duty. Ans: a
43. The
optimum tariff
a. must
occur in the elastic range of the tariff-imposing home country's offer curve.
b. takes account of the probability that the
partner country will retaliate with protective measures of its own.
c. maximizes total export
sales of the imposing country.
d. must
occur in the elastic range of the partner country's offer cure.
Ans: d
a. Any tax on a particular
imported good (as opposed to one on all imports).
b. An import tax that must be paid in kind (giving the government the
good itself). c. A requirement to pay the government a specified fraction of
the monetary value of an imported good.
d. A tax
on imports defined as an amount of currency per unit of the good.
Ans: d
45. A tariff
on imports benefits domestic producers of the imported good because a. They get
the tariff revenue.
b. It
raises the price for which they can sell their product on the domestic market.
c. It prevents imports from rising above a specified quantity.
d. It
reduces their producer surplus, making them more efficient. Ans: b
46. When a
large country levies a tariff on imports
a. The world price falls.
b.
Demanders of the good on the domestic market are hurt c. The domestic price
rises by less than the tariff.
d. All of the above.
Ans: d
47. Which of
the following refers to the fact that a large country can benefit by levying a
tariff?
a. The “optimal tariff”
b. The “terms of trade
effect of a tariff” c. The “monopoly effect of a tariff”
d. All
of the above Ans: d
48. The
WTO’s Agreement on Textiles and Clothing promised
a. To prevent job losses in
these industries in developed countries.
b. To phase out all quotas
on textiles and apparel by Dec. 31, 2004.
c. To eliminate tariffs on
these products in the next round of trade negotiations.
d. To help developing
countries escape from these dead-end industries.
Ans: b
49. In the 2-factor, 2 good
Heckscher-Ohlin model, the two countries differ in
a.
military capabilities.
b.
size.
c.
labor productivities.
d.
relative availabilities of factors of
production. Answer: d
50. In the Ricardian Model
of trade, under autarky (closed economy)
a.
Relative prices are determined by technology
b.
Countries tend to specialize in the production
of a single good
c.
Production is determined by comparative
advantage
d.
None of the above
Answer: a
True/False
1. The
Heckscher-Ohlin theory is often referred to as the factor-proportion theory.
Answer: True
3. International
trade acts as a substitute for the international mobility of factors of
production in its effect on factor prices.
Answer: True
4. Leontief’s
empirical findings agreed with the Heckscher-Ohlin trade model which predicts
that, as the most capital abundant nation, the U.S. should import
labor-intensive products.
Answer:
False
5. Non-traded
goods and services are those that are not traded because of international
barriers to entry, such as exorbitant import tariffs.
Answer: False
6. According to the
Heckscher-Ohlin model, if country A has a comparative advantage in producing
good X, and country B has a comparative advantage in producing good Y, if those
countries have similar tastes it is possible for those two countries to reach a
higher indifference curve with the introduction of trade.
Answer: True
7. According
to Ricardian theory, comparative advantage depends on relative differences in
labor productivity.
Answer: T
8. Free international trade
will continue to expand until the real wages for the same type of labor in the
two nations and the real rate of interest for the same type of capital in the
two nations are completely equalized.
Answer:
True
9. Labor
unions in developed nations are usually against trade restrictions because it
impedes their ability to acquire skilled workers that can assist in acquiring
additional benefits and wage increases.
Answer:
False
10. The
Heckscher-Ohlin theory asserts that relative differences in labor productivity
underlie comparative advantage. F
3.The
factor-endowment theory highlights the relative abundance of a nation’s
resources as the key factor underlying comparative advantage. T
4.According
to the factor-endowment theory, a nation will export that good for which a
large amount of the relatively scarce resource is used. F
5.According
to the factor-endowment theory, a nation will import that good for which a
large amount of the relatively abundant resource is used. F
6.The
Heckscher-Ohlin theory suggests that land-abundant nations will export
land-intensive goods while labor-abundant nations will export labor-intensive
goods. T
7.The
Heckscher-Ohlin theory contends that over a period of years a country that
initially is an exporter of a product will become an importer of that product.
F
8.The
Heckscher-Ohlin theory emphasizes the role that demand plays in the creation of
comparative advantage. F
9.The
factor-endowment theory asserts that with specialization and trade there tends
to occur equalization in the relative resource prices of trading partners. T
10.According
to the factor-endowment theory, international specialization and trade cause a
nation’s cheap resource to become cheaper and a nation’s expensive resource to
become more expensive. F
11.Fears
about the downward pressure that cheap foreign workers place on U.S. wages have
led U.S. labor unions to lobby for import restrictions such as tariffs and
quotas. T
12.According
to the factor-price-equalization theory, international trade results in the
relative differences in resource prices between nations being eliminated. T
13.Empirical testing by
Wassily Leontief gave support to the Heckscher-Ohlin theory of trade. F
14.The Leontief Paradox was
the first major challenge to the product-life-cycle theory of trade. F
15.The
factor-price-equalization theory is a short-run version of the specific-factors
theory. F
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