Monetary and Fiscal Policy, Union Budget and Resource Mobilisation: RAS Prelims MCQs
86 RAS Prelims MCQs on monetary and fiscal policy, the Union Budget and resource mobilisation test the tools of the RBI, the Monetary Policy Committee and inflation targeting, along with the deficits, taxes and budget terms. Each question asks for the effect of a policy change on liquidity or credit, so the explanations trace the transmission step by step.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
Showing 31–40 of 86 questions
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q31. Consider the following statements regarding Capital Expenditure: I. It leads to the creation of physical or financial assets. II. It includes the repayment of principal on government loans. III. It includes the payment of salaries and pensions to government employees. Which of the above statements are correct?
Explanation
Spending categorized as capital leads to the creation of long-term physical or financial assets, such as infrastructure or investments. It also includes payments made to reduce existing liabilities, like the repayment of loan principals. However, regular administrative costs like salaries and pensions are not included here; they are instead classified as revenue expenditure because they do not result in asset creation.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q32. Which of the following statements about Revenue Expenditure is incorrect?
Explanation
This type of spending is primarily focused on the routine operational costs of the government, such as salaries, pensions, and interest payments on past debt. It also covers subsidies provided for welfare. Unlike capital spending, it does not lead to the formation of lasting physical infrastructure or productive assets. Such expenditures are essential for administration but do not expand economic capacity.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q33. Read the following statements and select the correct option. Statement I: Capital budget consists of capital receipts and capital payments. Statement II: Grants given by the Union Government to State Governments for the creation of capital assets are strictly classified as Capital Expenditure in the Union Budget.
Explanation
The capital budget encompasses all transactions that impact the government’s assets and liabilities, including receipts like loans and expenditures like infrastructure building. Although grants given to states for asset creation serve a capital purpose, they are accounting-wise recorded as revenue expenditure in the union budget. This is because such grants do not directly create assets owned by the central government.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q34. Match the items in List I with their budget classification in List II.
Item
Budget Classification
A. Income Tax collected
i. Capital Receipt
B. Repayment of a loan by a State Government
ii. Capital Expenditure
C. Interest paid on national debt
iii. Revenue Receipt
D. Construction of a national highway
iv. Revenue Expenditure
Explanation
Income tax represents a recurring revenue receipt, while the repayment of a loan by a state reduces an asset, making it a capital receipt. Interest paid on debt is an operational cost classified as revenue expenditure. Conversely, the construction of a national highway involves the creation of a physical asset, which is correctly categorized as a capital expenditure for the government.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q35. Which of the following is NOT an example of Non-Tax Revenue for the Union Government?
Explanation
Non-tax revenue includes income from sources other than taxation, such as interest on loans, dividends from enterprises, and fees for services. These are distinct from compulsory levies on income or profits. Corporate tax, regardless of whether it is paid by domestic or foreign entities, is a direct tax and therefore forms a major part of the government’s tax revenue category.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q36. Which of the following provides the most appropriate distinction between a revenue receipt and a capital receipt?
Explanation
Revenue receipts are recurring and do not create any obligation for future repayment or result in the loss of assets. They represent the government’s regular income. Capital receipts, however, are non-recurring and either involve borrowing that must be repaid later or the sale of assets like shares in public companies. This fundamental difference determines the long-term impact on financial health.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q37. Consider the following statements regarding the components of the Government Budget: I. The budget is primarily divided into the Revenue Account and the Capital Account. II. Defense equipment purchases are universally classified as revenue expenditure. III. Borrowings from the public are classified as capital receipts. IV. Disinvestment proceeds are categorized under the revenue budget as they provide immediate cash. Which of the above statements are incorrect?
Explanation
The budget is split into revenue and capital accounts for better financial management. While borrowings are indeed capital receipts, the classification of defense equipment can vary, and disinvestment proceeds are non-debt capital receipts, not revenue. Categorizing disinvestment as revenue would be incorrect because it involves the sale of government assets, which fundamentally alters the capital structure of the entire public sector.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q38. Identify the correct pair among the following budget concepts.
Explanation
A balanced budget occurs when the total estimated receipts are exactly equal to the total planned expenditures for a fiscal year. In contrast, a surplus budget happens when revenues exceed spending, and a deficit budget occurs when spending is higher than revenues. The primary deficit specifically refers to the fiscal deficit excluding interest payments on previous debt, representing current policy outcomes.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q39. The Government of India plans to fund a massive railway expansion project through market borrowing. Under which head of the budget will this borrowing and the subsequent spending on railways be recorded respectively?
Explanation
Market borrowing is a form of debt that creates a future liability for the government, thus it is recorded as a capital receipt. The subsequent spending on a long-term infrastructure project like railway expansion leads to the creation of a physical asset. Therefore, this spending is classified as capital expenditure, reflecting the investment nature of the project on the government balance sheet.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q40. Fiscal Deficit is defined as the excess of total expenditure over:
Explanation
This measure represents the total gap between the government’s total expenditure and its non-borrowed receipts. It indicates the total amount of money the government needs to borrow from various sources to cover its spending requirements. By excluding borrowings from the receipt side, it provides a clear picture of the government’s financial health and its dependence on debt for various regular operations.
Answer key for these questions
Q
Correct answer
31
(a) I and II only
32
(b) It directly results in the creation of productive physical assets
33
(c) Statement I is correct but Statement II is incorrect
34
(a) A-iii, B-i, C-iv, D-ii
35
(d) Corporate tax paid by foreign companies
36
(c) Revenue is non-redeemable; capital involves future repayment/sale
37
(b) II and IV only
38
(d) Balanced Budget - Revenues equal expenditures
39
(a) Capital Receipt and Capital Expenditure
40
(c) Total receipts excluding borrowings
Key facts from Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
The objective of monetary policy under the RBI Act, 1934 is to maintain price stability while supporting growth.
If the RBI increases the CRR, the lendable resources of commercial banks decrease.
A higher reverse repo rate encourages banks to park funds with the RBI, reducing liquidity.
The statutory framework for the Monetary Policy Committee was introduced by amending the Reserve Bank of India Act, 1934.
Inflation targeting means keeping retail inflation within a statutory target range.
When the RBI buys government securities from the market, the total money supply increases.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Monetary and Fiscal Policy, Union Budget and Resource Mobilisation?
This page has 86 practice MCQs on Monetary and Fiscal Policy, Union Budget and Resource Mobilisation (Indian Economy). Each has the correct answer, and most have an explanation.
What happens when the RBI raises the CRR?
Banks must keep a larger share of their deposits with the RBI, so their lendable resources decrease. Credit becomes tighter, and the policy is used to control inflation.
What is inflation targeting?
A monetary policy framework in which the central bank aims to keep inflation within a stated range. In India the RBI works to a statutory target for retail (CPI) inflation, and the Monetary Policy Committee decides the policy rate.
What is the effect of the RBI buying government securities?
It pays the sellers with new money, so the total money supply in the economy increases. This is an open market operation, used to add liquidity, and selling securities does the opposite and absorbs liquidity from the banks.
