This set covers deficit concepts, the constitutional framework of the Union Budget, GST and the role of the Finance Commission. These topics appear in Prelims both as direct definitions and as statement-based questions.
How to practise: read each question and tap the option you think is correct. You will see right away whether you got it, along with a short explanation, and your score is tracked at the bottom of the screen. This set has 15 questions.
Topics covered in this set
- Fiscal, revenue, primary and effective revenue deficit
- Constitutional provisions on the Budget
- FRBM Act
- GST and the GST Council
- Direct and indirect taxes
- Finance Commission and the divisible pool
UPSC Economy MCQs with answers and explanations
Q1. Fiscal deficit is defined as total expenditure of the government minus:
a) Revenue receipts only
b) Revenue receipts and non-debt capital receipts
c) Tax revenue only
d) Interest payments
Q2. Primary deficit is equal to:
a) Revenue deficit minus grants for creation of capital assets
b) Fiscal deficit plus interest payments
c) Revenue expenditure minus revenue receipts
d) Fiscal deficit minus interest payments
Q3. Revenue deficit arises when:
a) Revenue expenditure exceeds revenue receipts
b) Capital expenditure exceeds capital receipts
c) Total expenditure exceeds tax revenue
d) Imports exceed exports
Q4. Effective revenue deficit is calculated as:
a) Fiscal deficit minus interest payments
b) Revenue deficit minus grants for creation of capital assets
c) Revenue deficit plus capital expenditure
d) Primary deficit minus subsidies
Q5. Under which Article of the Constitution is the Annual Financial Statement (Union Budget) laid before Parliament?
a) Article 110
b) Article 266
c) Article 112
d) Article 280
Q6. The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in:
a) 1991
b) 2003
c) 2010
d) 2017
Q7. The GST Council is a constitutional body provided under:
a) Article 280
b) Article 266
c) Article 112
d) Article 279A
Q8. Who chairs the GST Council?
a) Union Finance Minister
b) Prime Minister
c) Governor of the RBI
d) Chairman of the Finance Commission
Q9. Which of the following is kept outside the scope of GST by the Constitution itself?
a) Alcoholic liquor for human consumption
b) Mobile phones
c) Restaurant services
d) Textiles
Q10. Integrated GST (IGST) is levied on:
a) Intra-state supplies, and collected by the state
b) Inter-state supplies and imports, and collected by the Centre
c) Only exports of goods
d) Only services provided by the government
Q11. Which of the following is a direct tax?
a) Customs duty
b) Goods and Services Tax
c) Corporation tax
d) Central excise duty
Q12. A tax is called progressive when:
a) The tax rate rises as income rises
b) Everyone pays the same amount
c) The tax rate falls as income rises
d) It is levied only on goods
Q13. Which of the following statements about the Finance Commission is correct?
a) It is a statutory body created by an Act of Parliament
b) It is chaired by the Union Finance Minister
c) It is constituted by the President under Article 280, usually every five years
d) Its recommendations are binding on the RBI
Q14. Proceeds of which of the following are NOT shared with states as part of the divisible pool of central taxes?
a) Corporation tax
b) Personal income tax
c) Central GST
d) Cesses and surcharges levied by the Centre
Q15. The Laffer curve shows the relationship between:
a) Inflation and unemployment
b) Income and inequality
c) Tax rates and total tax revenue
d) Money supply and price level
Quick revision notes
- Fiscal deficit = total expenditure - (revenue receipts + non-debt capital receipts).
- Primary deficit = fiscal deficit - interest payments.
- Effective revenue deficit = revenue deficit - grants for creation of capital assets.
- The Annual Financial Statement is presented under Article 112 and the FRBM Act was passed in 2003.
- GST came through the 101st Amendment Act, 2016, and the GST Council is under Article 279A.
- The Finance Commission is constituted under Article 280; cesses and surcharges are outside the divisible pool.
Frequently asked questions
Why is fiscal deficit considered the most important deficit indicator?
Fiscal deficit shows the total borrowing the government needs in a year. High and persistent fiscal deficits raise public debt and interest payments, which can crowd out other spending.
What is the difference between vertical and horizontal devolution?
Vertical devolution is the share of the divisible pool of central taxes that goes to states as a whole. Horizontal devolution is how that share is distributed among individual states using criteria set by the Finance Commission.
Why is GST called a destination-based tax?
GST revenue goes to the state where goods or services are consumed, not where they are produced. This is why IGST on inter-state supplies is later apportioned to the consuming state.
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