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Public Finance and Public Ethics

Description: Public Finance and Public Ethics
Number of Questions: 15
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Tags: public finance public ethics
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What is the primary goal of public finance?

  1. To maximize government revenue

  2. To allocate resources efficiently

  3. To promote economic growth

  4. To reduce income inequality


Correct Option: B
Explanation:

The primary goal of public finance is to allocate resources efficiently among different sectors of the economy, taking into account both public and private interests.

Which of the following is a key principle of public ethics?

  1. Transparency

  2. Accountability

  3. Efficiency

  4. Equity


Correct Option: A
Explanation:

Transparency is a key principle of public ethics as it ensures that government activities are open to public scrutiny and that citizens are able to hold public officials accountable for their actions.

What is the concept of 'public goods' in public finance?

  1. Goods that are provided by the government

  2. Goods that are non-excludable and non-rivalrous

  3. Goods that are consumed by all citizens equally

  4. Goods that are subsidized by the government


Correct Option: B
Explanation:

Public goods are goods that are non-excludable (i.e., it is impossible to prevent people from consuming them) and non-rivalrous (i.e., one person's consumption does not diminish the availability of the good for others).

What is the difference between 'merit goods' and 'demerit goods' in public finance?

  1. Merit goods are goods that the government believes are beneficial to society, while demerit goods are goods that the government believes are harmful to society.

  2. Merit goods are goods that are provided by the government, while demerit goods are goods that are prohibited by the government.

  3. Merit goods are goods that are subsidized by the government, while demerit goods are goods that are taxed by the government.

  4. Merit goods are goods that are consumed by all citizens equally, while demerit goods are goods that are consumed by only a few citizens.


Correct Option: A
Explanation:

Merit goods are goods that the government believes are beneficial to society and therefore provides subsidies or other incentives to encourage their consumption. Demerit goods are goods that the government believes are harmful to society and therefore imposes taxes or other disincentives to discourage their consumption.

What is the concept of 'externalities' in public finance?

  1. Costs or benefits that are imposed on third parties as a result of an economic activity

  2. Costs or benefits that are incurred by the government as a result of an economic activity

  3. Costs or benefits that are incurred by the producer of a good or service

  4. Costs or benefits that are incurred by the consumer of a good or service


Correct Option: A
Explanation:

Externalities are costs or benefits that are imposed on third parties as a result of an economic activity. They can be positive (e.g., when a firm's pollution control efforts benefit neighboring communities) or negative (e.g., when a firm's pollution harms neighboring communities).

What is the role of public finance in addressing market failures?

  1. To provide goods and services that the private sector is unable or unwilling to provide

  2. To regulate the private sector to ensure that it operates in a competitive and efficient manner

  3. To redistribute income from the rich to the poor

  4. To promote economic growth


Correct Option: A
Explanation:

Public finance plays a key role in addressing market failures by providing goods and services that the private sector is unable or unwilling to provide. This includes goods and services that are non-excludable, non-rivalrous, or subject to externalities.

What is the difference between 'horizontal equity' and 'vertical equity' in public finance?

  1. Horizontal equity refers to the equal treatment of individuals with equal incomes, while vertical equity refers to the equal treatment of individuals with different incomes.

  2. Horizontal equity refers to the equal treatment of individuals with different incomes, while vertical equity refers to the equal treatment of individuals with equal incomes.

  3. Horizontal equity refers to the equal treatment of individuals with different wealth, while vertical equity refers to the equal treatment of individuals with equal wealth.

  4. Horizontal equity refers to the equal treatment of individuals with different consumption patterns, while vertical equity refers to the equal treatment of individuals with equal consumption patterns.


Correct Option: A
Explanation:

Horizontal equity refers to the equal treatment of individuals with equal incomes, while vertical equity refers to the equal treatment of individuals with different incomes. Horizontal equity is concerned with ensuring that individuals with the same ability to pay taxes pay the same amount of taxes, while vertical equity is concerned with ensuring that individuals with different abilities to pay taxes pay different amounts of taxes.

What is the concept of 'fiscal federalism' in public finance?

  1. The division of fiscal powers between different levels of government

  2. The use of fiscal policy to promote economic growth

  3. The use of fiscal policy to stabilize the economy

  4. The use of fiscal policy to redistribute income


Correct Option: A
Explanation:

Fiscal federalism refers to the division of fiscal powers between different levels of government. This includes the division of tax powers, spending powers, and borrowing powers.

What is the role of public finance in promoting economic growth?

  1. To provide infrastructure and other public goods that support economic activity

  2. To invest in education and other human capital development programs

  3. To provide subsidies to businesses and industries

  4. To reduce taxes on businesses and individuals


Correct Option: A
Explanation:

Public finance plays a key role in promoting economic growth by providing infrastructure and other public goods that support economic activity. This includes roads, bridges, ports, airports, and other transportation infrastructure, as well as education, healthcare, and other social services.

What is the concept of 'public debt' in public finance?

  1. The total amount of money that the government owes to its creditors

  2. The total amount of money that the government has borrowed from its central bank

  3. The total amount of money that the government has borrowed from foreign governments

  4. The total amount of money that the government has borrowed from domestic banks


Correct Option: A
Explanation:

Public debt refers to the total amount of money that the government owes to its creditors. This includes money that the government has borrowed from domestic and foreign sources, as well as money that the government owes to its own central bank.

What is the concept of 'fiscal deficit' in public finance?

  1. The difference between government revenue and government expenditure

  2. The difference between government expenditure and government revenue

  3. The difference between government borrowing and government lending

  4. The difference between government assets and government liabilities


Correct Option: B
Explanation:

Fiscal deficit refers to the difference between government expenditure and government revenue. A fiscal deficit occurs when government expenditure exceeds government revenue, resulting in a negative fiscal balance.

What is the role of public finance in addressing income inequality?

  1. To provide social safety nets for the poor and vulnerable

  2. To provide tax breaks for the wealthy

  3. To reduce government spending on public goods and services

  4. To increase government borrowing


Correct Option: A
Explanation:

Public finance plays a key role in addressing income inequality by providing social safety nets for the poor and vulnerable. This includes programs such as unemployment benefits, food stamps, and housing assistance.

What is the concept of 'tax incidence' in public finance?

  1. The distribution of the burden of a tax among different groups of people

  2. The total amount of revenue that a tax generates

  3. The rate at which a tax is levied

  4. The base on which a tax is levied


Correct Option: A
Explanation:

Tax incidence refers to the distribution of the burden of a tax among different groups of people. It is important to consider the incidence of a tax when designing tax policy, as different taxes can have different distributional effects.

What is the concept of 'tax efficiency' in public finance?

  1. The ability of a tax to raise revenue without causing economic distortions

  2. The ability of a tax to raise revenue without causing inflation

  3. The ability of a tax to raise revenue without causing unemployment

  4. The ability of a tax to raise revenue without causing income inequality


Correct Option: A
Explanation:

Tax efficiency refers to the ability of a tax to raise revenue without causing economic distortions. Economic distortions can occur when taxes discourage people from working, saving, or investing.

What is the concept of 'tax equity' in public finance?

  1. The equal treatment of individuals with equal incomes

  2. The equal treatment of individuals with different incomes

  3. The equal treatment of individuals with different wealth

  4. The equal treatment of individuals with different consumption patterns


Correct Option: A
Explanation:

Tax equity refers to the equal treatment of individuals with equal incomes. This means that individuals with the same ability to pay taxes should pay the same amount of taxes.

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