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Q1Indian Economy·Fiscal Policy & BudgetingPYQ 2026
Which one of the following best describes the ‘Crowding Out Effect’ in the context of fiscal policy?
- AA situation where private investment increases due to increased Government spending
- BA situation where Government borrowing leads to higher interest rates, which reduces private investmentCorrect
- CA situation where an increase in taxes leads to increased private sector investment
- DA situation where Government spending has no impact on aggregate demand
Why the other options are incorrect
- Option A
A rise in private investment following public spending is commonly called crowding in. Crowding out instead describes private activity being displaced, for example when public borrowing raises financing costs.
- Option C
Tax changes can influence investment incentives, but this is not the definition of crowding out. The option describes rising private investment, whereas the conventional effect involves government financing displacing some private investment.
- Option D
Crowding out does not require public spending to have no effect on aggregate demand. It describes an offsetting reduction in private activity, which can partly or, under particular assumptions, more fully counteract the stimulus.
Q2Indian Economy·Fiscal Policy & BudgetingPYQ 2025
Consider the following statements:
1. Capital receipts either create a liability or reduce the assets of the Government.
2. Borrowings and disinvestment proceeds are capital receipts.
3. Interest received on loans by the Government creates a liability of the Government.
Which of the statements given above is/are correct?
- A1 and 2 onlyCorrect
- B2 and 3 only
- C1 and 3 only
- D1, 2 and 3
Explanation
Correct. Capital receipts either create liabilities, like borrowings, or reduce assets, like recovery of loans or disinvestment. Interest received on loans is a revenue receipt and does not create a liability.
Why the other options are incorrect
- Option B
This is incorrect because Statement 3 is wrong.
- Option C
This is incorrect because Statement 2 is also correct.
- Option D
This is incorrect because interest received on loans is not a liability-creating capital receipt.
Q3Indian Economy·Fiscal Policy & BudgetingPYQ 2025
If fiscal deficit is Rs. 50,000 crore and interest liabilities are Rs. 1,500 crore, the gross primary deficit is:
- ARs. 48,500 croreCorrect
- BRs. 51,500 crore
- CRs. 58,500 crore
- DRs. 60,000 crore
Explanation
Correct. Primary deficit is obtained by subtracting interest payments from fiscal deficit. Therefore, 50,000 - 1,500 = Rs. 48,500 crore.
Why the other options are incorrect
- Option B
This is incorrect because primary deficit is not calculated by adding interest liabilities to fiscal deficit.
- Option C
This is incorrect because there is no basis for adding the amounts in that manner.
- Option D
This is incorrect because the correct arithmetic gives Rs. 48,500 crore.
Q4Indian Economy·Fiscal Policy & BudgetingPYQ 2025
Revenue expenditure of a government is Rs. 80,000 crore, revenue receipts are Rs. 60,000 crore, borrowings are Rs. 10,000 crore, and interest payments are Rs. 6,000 crore. Consider the following statements:
1. Revenue deficit is Rs. 20,000 crore.
2. Fiscal deficit is Rs. 10,000 crore.
3. Primary deficit is Rs. 4,000 crore.
Which of the statements given above are correct?
- A1 and 2 only
- B2 and 3 only
- C1 and 3 only
- D1, 2 and 3Correct
Explanation
Correct. Revenue deficit = 80,000 - 60,000 = 20,000 crore. Fiscal deficit is reflected by the borrowing requirement of Rs. 10,000 crore, and primary deficit = fiscal deficit - interest payments = 10,000 - 6,000 = Rs. 4,000 crore.
Why the other options are incorrect
- Option A
This is incorrect because Statements 2 and 3 are also correct in the simplified data given.
- Option B
This is incorrect because Statement 1 is also correct: revenue deficit equals revenue expenditure minus revenue receipts.
- Option C
This is incorrect because Statement 2 is also correct in the context of the figures supplied.
Q5Indian Economy·Fiscal Policy & BudgetingPYQ 2022
Which of the following would most appropriately be classified as capital expenditure of the government?
- ASalary paid to school teachers
- BInterest payment on past debt
- CConstruction of a new highwayCorrect
- DSubsidy on fertilizer
Explanation
Correct. Construction of a new highway creates a long-term physical asset and is therefore capital expenditure.
Why the other options are incorrect
- Option A
This is incorrect because salaries are revenue expenditure; they do not create a durable asset for the government.
- Option B
This is incorrect because interest payments are revenue expenditure.
- Option D
This is incorrect because fertilizer subsidy is a revenue expenditure item.
Q6Indian Economy·Fiscal Policy & BudgetingPYQ 2022
With reference to household savings in India, which of the following can represent a channel through which such savings finance government borrowing?
1. Investment in dated government securities
2. Small savings collections routed to the government
3. Bank deposits that are partly used by banks to hold government securities
Select the correct answer using the code given below:
- A1 only
- B1 and 2 only
- C1, 2 and 3Correct
- D2 and 3 only
Explanation
Correct. Household savings finance government borrowing directly through securities and small savings, and indirectly through banks that invest part of their resources in government paper.
Why the other options are incorrect
- Option A
This is incomplete because household savings can reach government borrowing through more than direct purchases of dated securities.
- Option B
This is incomplete because bank intermediation also channels household savings into government securities.
- Option D
This is incorrect because direct household investment in dated securities is also a valid channel.
Q7Indian Economy·Fiscal Policy & BudgetingPYQ 2022
Consider the following:
1. Acquiring new technology for an existing factory
2. Financing a project through debt
3. Financing a project through equity
Which of the above is/are classified as capital expenditure?
- A1 onlyCorrect
- B2 only
- C1 and 2 only
- D1, 2 and 3
Explanation
Correct. Acquiring new technology creates a long-term asset and is capital expenditure. Debt financing and equity financing are methods of raising funds, not expenditure items themselves.
Why the other options are incorrect
- Option B
This is incorrect because debt financing is a means of raising capital, not itself an expenditure.
- Option C
This is incorrect because debt financing is not an expenditure classification.
- Option D
This is incorrect because financing methods are not expenditure items.
Q8Indian Economy·Fiscal Policy & BudgetingPYQ 2021
In a situation of economic recession, which of the following measures is/are appropriate?
1. Cut in tax rates accompanied by an increase in public expenditure
2. Reduction in public works programmes
3. Increase in transfer payments to support demand
Select the correct answer using the code given below:
- A1 only
- B1 and 3 onlyCorrect
- C2 and 3 only
- D1, 2 and 3
Explanation
Correct. Recessions are commonly addressed through expansionary fiscal policy, including tax cuts, higher public expenditure, and support payments that strengthen aggregate demand.
Why the other options are incorrect
- Option A
This is incomplete because higher transfer payments can also support demand during a recession.
- Option C
This is incorrect because cutting public works is contractionary and would worsen recessionary conditions.
- Option D
This is incorrect because Statement 2 is not appropriate during a recession.
Q9Indian Economy·Fiscal Policy & BudgetingPYQ 2021
The Government Bond Yields in India are influenced by:
1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates in India
Select the correct answer using the code given below:
- A1 and 2 only
- B2 only
- C2 and 3 only
- D1, 2 and 3Correct
Explanation
Correct. Indian government bond yields are influenced by global monetary conditions (including US Federal Reserve policy), RBI's own monetary policy actions, and domestic inflation and interest rate expectations.
Why the other options are incorrect
- Option A
This is incomplete because domestic inflation and interest rates also significantly affect government bond yields.
- Option B
This is incomplete because global monetary conditions and domestic inflation also matter.
- Option C
This is incomplete because US Federal Reserve actions impact global capital flows and can affect Indian bond yields.
Q10Indian Economy·Fiscal Policy & BudgetingPYQ 2020
Non-financial debt of a country includes:
1. Housing loans owed by households
2. Credit card bills owed by households
3. Treasury bills issued by the government
Select the correct answer using the code given below:
- A1 only
- B1 and 2 only
- C3 only
- D1, 2 and 3Correct
Explanation
Correct. Non-financial debt includes all borrowings by non-financial entities such as households, corporations, and the government. Housing loans, credit card bills, and treasury bills all qualify.
Why the other options are incorrect
- Option A
This is incomplete because credit card debt and government treasury bills are also non-financial debt.
- Option B
This is incomplete because government treasury bills are also part of non-financial debt.
- Option C
This is incomplete because household loans and credit card obligations are also non-financial sector debt.
Q11Indian Economy·Fiscal Policy & BudgetingPYQ 2020
The Macro Economic Framework Statement is presented as a mandate of the:
- AParliamentary convention
- BConstitutional provisions relating to the Annual Financial Statement alone
- CAppropriation process under Article 113
- DFiscal Responsibility and Budget Management Act, 2003Correct
Explanation
Correct. The FRBM Act, 2003 mandates the presentation of statements such as the Macro Economic Framework Statement to improve fiscal transparency and accountability.
Why the other options are incorrect
- Option A
This is incorrect because the statement is not merely a matter of convention.
- Option B
This is incorrect because the statement flows from the FRBM framework, not only from the constitutional requirement to present the budget.
- Option C
This is incorrect because Article 113 deals with Demands for Grants, not the FRBM reporting requirement.
Q12Indian Economy·Fiscal Policy & BudgetingPYQ 2018
Which of the following items were GST-exempt at the time of the question?
1. Cereal grains hulled
2. Chicken eggs cooked
3. Fish processed and canned
4. Newspapers with advertisements
Select the correct answer using the code given below:
- A1, 2 and 4 onlyCorrect
- B2 only
- C1, 3 and 4 only
- D1, 2, 3 and 4
Explanation
Correct. Cereal grains, cooked eggs, and newspapers were among the exempt items, whereas processed and canned fish was not exempt in the way suggested.
Why the other options are incorrect
- Option B
This is incorrect because exemption was not limited to cooked eggs alone.
- Option C
This is incorrect because processed and canned fish was not part of the exempt set in the question.
- Option D
This is incorrect because not all four items were exempt.