Crowding out occurs when: MCQ with Answer and Explanation

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Crowding out occurs when:

A. taxes are reduced

B. government borrowing reduces private investment

C. government expenditure increases private investment

D. private investment reduces government spending

Answer: Option B

Solution (By JKSSB Mock Tests)

Crowding out occurs when increased government borrowing raises interest rates and reduces private investment.

This question belongs to: Economy GK Economy Set 1

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Question #1

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In the context of Indian public finance, 'Effective Revenue Deficit' is defined as:

A. Primary deficit plus interest payments

B. Revenue deficit minus grants for creation of capital assets

C. Revenue deficit plus capital expenditure

D. Fiscal deficit minus interest payments

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Correct Answer: Option B

Explanation:
Effective Revenue Deficit is Revenue Deficit minus grants given by the Centre to states and union territories for the creation of capital assets.

This question belongs to: Economy GK Economy Set 1

Question #2

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The term 'Managed Floating' exchange rate system means:

A. Exchange rate is determined by market forces with occasional central bank intervention

B. Exchange rate is completely fixed by the government

C. There is no role for the central bank

D. Exchange rate is fixed in terms of gold only

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Correct Answer: Option A

Explanation:
Under a managed floating system, the exchange rate is primarily determined by market forces, but the central bank intervenes occasionally to prevent excessive volatility.

This question belongs to: Economy GK Economy Set 1