Deficit financing means: MCQ with Answer and Explanation

Question

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Deficit financing means:

A. reducing government expenditure

B. repayment of public debt

C. financing government expenditure through borrowing or money creation

D. financing government expenditure through taxation

Answer: Option C

Solution (By JKSSB Mock Tests)

Deficit financing involves financing a budget deficit through borrowing or creation of money.

This question belongs to: Economy GK Economy Set 1

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Question #1

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Under perfect competition, the profit-maximizing condition for a firm is:

A. MR is maximum

B. TR is maximum

C. MR = MC and MC is rising

D. P = AC

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Correct Answer: Option C

Explanation:
A perfectly competitive firm maximizes profit where marginal revenue equals marginal cost and MC is rising.

This question belongs to: Economy GK Economy Set 1

Question #2

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The term 'Fiscal Drag' refers to:

A. Automatic increase in tax revenue due to inflation

B. Increase in fiscal deficit

C. Decrease in tax rates

D. Deliberate reduction in government spending

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Correct Answer: Option A

Explanation:
Fiscal drag occurs when inflation pushes taxpayers into higher tax brackets, increasing tax revenue without any change in tax rates, acting as an automatic stabiliser.

This question belongs to: Economy GK Economy Set 1

Question #3

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A 'merit good' is a good that:

A. is consumed voluntarily

B. the government encourages or provides because it has positive externalities and is under-consumed

C. has negative externalities

D. is only for the rich

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Correct Answer: Option B

Explanation:
Merit goods are under-consumed if left to the market, so government encourages their provision.

This question belongs to: Economy GK Economy Set 1

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