Public Finance and Fiscal Policy MCQs 2026

A lump-sum tax is

1. Aa fixed amount independent of income or behaviour✓
2. Balways progressive✓
3. Calways an import duty✓
4. Dalways a VAT✓

Off-budget items can obscure fiscal reality because they

1. Acreate liabilities outside the reported budget totals✓
2. Balways reduce public debt✓
3. Care identical to CRR✓
4. Dare WTO tariffs✓

Ability-to-pay principle says

1. Ataxes should relate to economic capacity✓
2. Bonly road users pay all taxes✓
3. Ctariffs should be the only tax✓
4. Ddeficits are always best✓

The benefit principle of taxation says

1. Aonly ability to pay matters✓
2. Btaxes should be secret✓
3. Cdebt should finance all spending✓
4. Dpeople should pay according to benefits received from public services✓

Pump priming means

1. Ausing fiscal stimulus to jump-start a depressed economy✓
2. Braising CRR in a boom✓
3. Cselling gold from SBP✓
4. Dimposing quotas✓

A structural budget balance adjusts for

1. Aonly oil prices forever✓
2. Bonly one-off bank bailouts never✓
3. Cthe business cycle to show underlying fiscal stance✓
4. Donly weather✓

Fiscal space refers to

1. Aroom to raise spending or cut taxes without endangering sustainability✓
2. Bonly unused CRR balances✓
3. Conly unused import quotas✓
4. Donly vacant civil service posts✓

Earmarked taxes are

1. Aalways progressive income taxes✓
2. Bnever collected✓
3. Crevenues reserved for particular uses✓
4. Didentical to seigniorage✓

User charges are

1. Afees paid by beneficiaries of specific public services✓
2. Bgeneral income taxes✓
3. Cimport tariffs only✓
4. DCRR deposits✓

Interest payments on public debt are

1. Anever part of the budget✓
2. Bidentical to primary deficit✓
3. Ca claim on current revenue that can crowd other spending✓
4. Dpaid only in foreign aid✓

Debt-to-GDP ratio is watched because

1. Ait gauges sustainability of public debt relative to the economy's size✓
2. Bit equals the unemployment rate✓
3. Cit replaces CPI✓
4. Dit sets CRR✓

Pro-cyclical fiscal policy

1. Aworsens cycles by spending more in booms and cutting in slumps✓
2. Balways stabilizes output✓
3. Cis identical to automatic stabilizers✓
4. Dnever occurs in practice✓

Counter-cyclical fiscal policy aims to

1. Aalways run larger deficits in booms✓
2. Bignore the business cycle✓
3. Creplace monetary policy entirely✓
4. Dstimulate in slumps and restrain in booms✓

An ad valorem tax is levied as

1. Aa fixed rupee per unit only✓
2. Ba percentage of the value/price of the good✓
3. Ca lump-sum on each person only✓
4. Da CRR percentage✓

A specific tax is levied as

1. Aa percentage of price only✓
2. Ba share of income only✓
3. Ca fixed amount per unit of the good✓
4. Da poll tax on land area only✓

Deadweight loss of a tax is

1. Aalways zero✓
2. Bequal to public debt stock✓
3. Cequal to the money base✓
4. Dthe efficiency loss from distorted choices beyond revenue transferred✓

NFC Award in Pakistan relates to

1. Avertical and horizontal distribution of federal tax revenues to provinces✓
2. Bsetting the SBP policy rate✓
3. CWTO accession✓
4. DCRR determination✓

Fiscal federalism concerns

1. Aonly central bank independence✓
2. Bonly WTO rules✓
3. Cassignment of taxes and spending across tiers of government✓
4. Donly commercial bank CRR✓

Demerit goods are

1. Aalways public goods✓
2. Balways free to all✓
3. Cnever taxed✓
4. Dgoods discouraged due to negative social effects (e.g., tobacco)✓

Merit goods are

1. Agoods government encourages because of positive social value (e.g., education, health)✓
2. Bgoods banned entirely✓
3. Cpure public goods only✓
4. Dinferior goods only✓

A free-rider problem arises when

1. Aeveryone pays exactly their share✓
2. Bpeople benefit without paying, under-providing public goods✓
3. Cmarkets always clear public goods✓
4. Dtaxes are lump-sum only✓

Public goods are characterized by

1. Astrict rivalry and easy exclusion✓
2. Bprivate market provision always✓
3. Czero free-rider problems✓
4. Dnon-rivalry and non-excludability✓

Tax elasticity (narrow sense) often isolates

1. Aonly tariff elasticity of demand✓
2. Bautomatic revenue response holding tax law constant✓
3. Conly Phillips curve slope✓
4. Donly Okun's coefficient✓

Tax buoyancy measures

1. Aonly the CRR✓
2. Bonly unemployment✓
3. Cresponsiveness of tax revenue to growth in national income (including discretionary changes)✓
4. Donly the money multiplier✓

The Laffer curve illustrates that

1. Ahigher rates always raise infinite revenue✓
2. Bbeyond some point, higher tax rates may reduce tax revenue✓
3. Czero rates maximize revenue✓
4. Dtariffs never affect revenue✓

Ricardian equivalence suggests that

1. Adeficit-financed tax cuts may be offset by higher private saving✓
2. Bdeficits never matter✓
3. Ctaxes never affect behaviour✓
4. Ddebt is always free✓

Deficit financing by printing money risks

1. Aautomatic deflation✓
2. Bzero public debt forever✓
3. Chigher CRR by law✓
4. Dinflation if it expands money excessively✓

Current (non-development) expenditure includes

1. Aonly new dams and highways✓
2. Bonly equity purchases abroad✓
3. Conly IMF quota increases✓
4. Dsalaries, subsidies, interest and routine operations✓

A development budget (capital budget) focuses on

1. Aonly interest on past debt✓
2. Bonly salaries of clerks✓
3. Cinvestment and development projects✓
4. Donly defence pensions✓

Vertical equity means

1. Aeveryone pays identical amounts✓
2. Btax ignores income✓
3. Conly the poor are taxed heavily by design always✓
4. Dunequals should be treated unequally (fairly by ability)✓

Horizontal equity means

1. Athe rich pay less than the poor✓
2. Bonly corporations are taxed✓
3. Ctax is secret✓
4. Dequals should be treated equally✓

Tax incidence refers to

1. Awho remits the cheque to the treasury only✓
2. Bthe statutory rate only✓
3. Cwho ultimately bears the burden of a tax✓
4. Dthe budget speech date✓

Customs duty is a tax on

1. Aimports (and sometimes exports)✓
2. Bdomestic wages only✓
3. Cbank reserves only✓
4. Dmunicipal property only✓

Excise duty is typically

1. Aa tax on all wages✓
2. Ba tax on specific goods such as tobacco, fuel or luxuries✓
3. Ca tax on bank CRR✓
4. Da tax on exports only always✓

VAT (value-added tax) is levied on

1. Aonly final household income✓
2. Bonly land area✓
3. Conly bank deposits✓
4. Dvalue added at each stage of production/distribution✓

Fiscal deficit in many presentations equals

1. Aexports minus imports✓
2. Btotal expenditure minus total revenue (including borrowing need)✓
3. CM2 minus M0✓
4. DCPI minus PPI✓

The primary deficit excludes

1. Aall defence spending✓
2. Binterest payments on public debt✓
3. Call tax revenue✓
4. Dall development spending✓

Discretionary fiscal policy requires

1. Ano parliamentary action ever✓
2. Bonly automatic tax formulas✓
3. Cdeliberate changes in spending or tax laws✓
4. Donly central bank OMOs✓

Automatic stabilizers are

1. Adiscretionary stimulus packages only✓
2. Btax and transfer rules that cushion cycles without new legislation✓
3. CCRR changes by SBP✓
4. DWTO safeguard tariffs✓

Contractionary fiscal policy typically involves

1. Alower spending and/or higher taxes✓
2. Blowering the policy rate only✓
3. Cbuying securities only✓
4. Dcutting CRR✓

Expansionary fiscal policy typically involves

1. Ahigher CRR✓
2. Bselling securities in OMOs only✓
3. Craising the policy rate✓
4. Dhigher spending and/or lower taxes✓

Fiscal policy uses

1. Aonly CRR and SLR✓
2. Bonly OMOs✓
3. Conly tariff quotas✓
4. Dgovernment spending and taxation to influence the economy✓

External public debt is owed

1. Aonly to local shopkeepers✓
2. Bonly to provincial governments✓
3. Cto foreign creditors✓
4. Donly to domestic pensioners✓

Internal public debt is owed

1. Aonly to the IMF✓
2. Bonly to foreign governments✓
3. Cto domestic creditors✓
4. Donly to WTO✓

Public debt is

1. Aonly one year's deficit✓
2. Bthe accumulated stock of government borrowing✓
3. Cprivate corporate bonds only✓
4. Dhousehold mortgages only✓

A balanced budget means

1. Adebt is infinite✓
2. Bplanned revenue equals planned expenditure✓
3. Ctaxes are banned✓
4. Donly deficits are allowed✓

A budget surplus means

1. Aexpenditure always exceeds revenue✓
2. Brevenue exceeds expenditure✓
3. Cpublic debt must rise✓
4. Dtaxes are zero✓

A budget deficit occurs when

1. Agovernment expenditure exceeds government revenue✓
2. Brevenue exceeds expenditure✓
3. Cexports exceed imports✓
4. Dsaving equals investment✓

The canon of economy implies

1. Aspending should always exceed revenue✓
2. Bdebt should be maximized✓
3. Ctax rates should be infinite✓
4. Dcollection costs should be low relative to revenue✓

The canon of convenience means

1. Ataxes must be paid only in gold✓
2. Bcollection should maximize harassment✓
3. Ctaxes should be payable in a manner and time convenient to the payer✓
4. Dfiling should be impossible✓

The canon of certainty requires that

1. Atax rates change daily without notice✓
2. Bcollectors decide amounts randomly✓
3. Cno law defines the tax base✓
4. Dtax liability should be clear and not arbitrary✓

The canon of equity (ability to pay) suggests taxes should

1. Aignore income differences✓
2. Bbe fair relative to taxpayers' capacity✓
3. Ctax only exports✓
4. Dbe secret and arbitrary✓

Adam Smith's canons of taxation include

1. Aonly maximum tariffs✓
2. Bonly zero public spending✓
3. Conly money illusion✓
4. Dequity, certainty, convenience and economy✓

A regressive tax burden means

1. Arates rise with income✓
2. Bthe poor pay a higher fraction of income than the rich✓
3. Conly corporations are taxed✓
4. Dtax is always lump-sum and fair✓

A proportional (flat) tax means

1. Arates rise steeply with income✓
2. Bthe same tax rate applies at all income levels✓
3. Crates fall as income rises✓
4. Donly the poor are taxed✓

A progressive tax system means

1. Athe average tax rate rises as income rises✓
2. Beveryone pays the same absolute amount✓
3. Cthe poor pay a higher rate than the rich✓
4. Dtax rate falls as income rises✓

An indirect tax is typically

1. Apaid only by civil servants✓
2. Bnever included in market price✓
3. Clevied on goods/services and can be shifted to consumers via prices✓
4. Didentical to income tax✓

A direct tax is one whose

1. Aincidence can never shift✓
2. Bis always on imports only✓
3. Cburden is intended to fall on the person who pays it to the government✓
4. Dis paid only by tourists✓

Public finance studies

1. Aonly private household budgets✓
2. Bgovernment revenue, expenditure, debt and fiscal policy✓
3. Conly commercial bank lending✓
4. Donly WTO dispute panels✓