CA Foundation Paper 4

Public Finance MCQ

Chapter 6 • 26 Questions from ICAI Study Material

Questions

26

Est. Time

20 min

Exam Weight

8-10%

Source

ICAI Book

Sample Questions: Public Finance

Preview 8 of 26 MCQs from Chapter 6

1. SOLUTION Calculation of national income by expenditure method: GDPMP = Government final consumption expenditure (Public final consumption expenditure) + Private final consumption expenditure + Gross domestic capital formation (Gross domestic fixed capital formation + change stock + Net acquisition of valuables) + Net export (Note: As net import is20, hence, net export is -20) = 5 +10 + [350 + 30 +10 ]+(- 20) = 5+10+390-20 = 385 Crores NNPFC = GDPMP – Depreciation + Net factor income from abroad (Income from abroad – Income paid to abroad) – Net Indirect tax (Indirect tax – subsidies) = 385 – 30 + [0 – 20] – [0-100] = 385 – 30 – 20 + 100 = 435 Crores. THE SYSTEM OF REGIONAL ACCOUNTS IN INDIA Regional accounts provide an integrated database on the innumerable transactions taking place in the regional economy and help decision making at the regional level. At present, practically all the states and union territories of India compute state income estimates and DETERMINATION OF NATIONAL INCOME district level estimates. State Income or Net State Domestic Product (NSDP) is a measure in monetary terms of the volume of all goods and services produced in the state within a given period of time (generally a year) accounted without duplication. Per Capita State Income is obtained by dividing the NSDP (State Income) by the midyear projected population of the state. The state level estimates are prepared by the State Income Units of the respective State Directorates of Economics and Statistics (DESs). The Central Statistical Organisation assists the States in the preparation of these estimates by rendering advice on conceptual and methodological problems. In the preparation of state income estimates, certain activities such as railways, communications, banking and insurance and central government administration, that cut across state boundaries, and thus their economic contribution cannot be assigned to any one state directly are known as the ‘Supra-regional sectors’ of the economy. The estimates for these supra regional activities are compiled for the economy as a whole and allocated to the states on the basis of relevant indicators. GDP AND WELFARE Can the GDP of a country be taken as an index of the welfare of people in that country? There are many reasons to dispute the validity of GDP as a perfect measure of well-being. In fact, GDP measures our ability to obtain many requirements to make our life better; yet leave out many important aspects which ensure good quality of life for all. GDP measures exclude the following which are critical for the overall wellbeing of citizens.

A) Income distributions and, therefore, GDP per capita is a completely inadequate measure of welfare. Countries may have significantly different income distributions and, consequently, different levels of overall well-being for the same level of per capita income.
B) Quality improvements in systems and processes due to technological as well as managerial innovations which reflect true growth in output from year to year. ✓
C) Productions hidden from government authorities, either because those engaged in it are evading taxes or because it is illegal (drugs, gambling etc.).
D) Nonmarket production (with a few exceptions) and Non-economic contributors to well-being for example: health of a country’s citizens, education levels, political participation, or other social and political factors that may significantly affect well- being levels. (e) The disutility of loss of leisure time. We know that, other things remaining the same, a country’s GDP rises if the total hours of work increase.

2. The concept of ‘resident unit’ involved in the definition of GDP denotes

A) A business enterprise which belongs to a citizen of India with production units solely situated in India
B) The unit having predominant economic interest in the economic territory of the country for one year or more irrespective of the nationality or legal status ✓
C) A citizen household which had been living in India during the accounting year and one whose economic interests are solely in India
D) Households and business enterprises composed of citizens of India alone living in India during the accounting year

3. Read the following statements and answer the following question. I. Intermediate consumption consists of the value of the goods and services consumed as inputs by a process of production, DETERMINATION OF NATIONAL INCOME II. Intermediate consumption excludes fixed assets whose consumption is recorded as consumption of fixed capital.

A) Only I is true
B) Both I and II are true ✓
C) Only II is true
D) Neither I nor II is true

4. Gross Domestic Product (GDP) of any nation

A) excludes capital consumption and intermediate consumption
B) is inclusive of capital consumption or depreciation ✓
C) is inclusive of indirect taxes but excludes subsidies
D) None of the above

5. Read the following statements I. ‘Value added’ refers to the difference between value of output and purchase of intermediate goods. II. ‘Value added’ represents the contribution of labour and capital to the production process.

A) Statements I and II are incorrect
B) Statements I and II are correct ✓
C) Statement I is correct and II is incorrect
D) Statement II is correct and I is incorrect

6. Non-economic activities are

A) those activities whose value is excluded from national income calculation as it will involve double counting
B) those which produce goods and services, but since these are not exchanged in a market transaction they do not command any market value ✓
C) those which do not involve production of goods and services as they are meant to provide hobbies and leisure time activities
D) those which result in production for self consumption and therefore not included in national income calculation

7. Which of the following does not enter into the calculation of national income?

A) Exchange of previously produced goods
B) Exchange of second hand goods
C) Exchange of stocks and bonds
D) All the above ✓

8. Which of the following enters into the calculation of national income?

A) The value of the services that accompany the sale
B) Additions to inventory stocks of final goods and materials
C) Stocks and bonds sold during eth current year
D) (a) and (b) above ✓