Lesson M3.1.1

M3.1.1 Government budget, taxation and government expenditure Quiz: OCR Economics, Unit 8

20 questions

Written by Revision Ninja · Last reviewed 11 October 2026

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Lesson M3.1.1, Government budget, taxation and government expenditure: 20 multiple choice questions for the OCR Economics (H460), Unit 8: Implementing policy, written with Revision Ninja.

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The 20 questions

  1. What term describes a scenario where government expenditure exceeds tax revenue in a single year?

    • National debt
    • Budget deficit
    • Trade deficit
    • Budget surplus

  2. Which type of tax is levied directly on an individual or firm's income and profit?

    • Regressive tax
    • Ad valorem tax
    • Direct tax
    • Indirect tax

  3. What name is given to the total accumulated stock of debt owed by the government?

    • Budget deficit
    • National debt
    • Fiscal deficit
    • Current account debt

  4. What type of tax takes a higher percentage of income as income rises?

    • Progressive tax
    • Proportional tax
    • Indirect tax
    • Regressive tax

  5. Which category of public expenditure covers day-to-day running costs like public sector salaries?

    • Debt servicing
    • Capital expenditure
    • Current expenditure
    • Transfer payments

  6. Which curve illustrates the relationship between tax rates and total tax revenue raised?

    • Laffer curve
    • Kuznets curve
    • Phillips curve
    • Lorenz curve

  7. What type of budget deficit persists even when an economy operates at its full potential output?

    • Cyclical deficit
    • Structural deficit
    • Trade deficit
    • Primary deficit

  8. Which type of tax is levied on goods and services at the point of sale?

    • Indirect tax
    • Capital gains tax
    • Progressive tax
    • Direct tax

  9. If a worker earns £10,000 and pays £1,000 in tax, what is their average tax rate?

    • 100%
    • 10%
    • 1%
    • 20%

  10. Unemployment benefits and state pensions are classified under which category of government spending?

    • Resource expenditure
    • Transfer payments
    • Current expenditure
    • Capital expenditure

  11. Government investment in building new hospitals and roads is classified as which spending type?

    • Current expenditure
    • Capital expenditure
    • Transfer payments
    • Consumption spending

  12. VAT takes a higher proportion of income from low earners than high earners. What tax type is it?

    • Proportional tax
    • Direct tax
    • Regressive tax
    • Progressive tax

  13. What mechanisms automatically cushion economic fluctuations through changes in tax revenue and welfare spending?

    • Discretionary policies
    • Automatic stabilisers
    • Monetary instruments
    • Supply-side shocks

  14. What fiscal stance is adopted when government cuts taxes and increases spending to stimulate demand?

    • Neutral
    • Balanced
    • Contractionary
    • Expansionary

  15. What term describes a tax where revenues are explicitly ring-fenced for a specific expenditure item?

    • Ad valorem tax
    • Specific tax
    • Proportional tax
    • Hypothecated tax

  16. What term describes the annual amount the UK public sector needs to borrow to fund spending?

    • PSNB
    • PSND
    • CPI
    • RPI

  17. Which of Adam Smith's canons of taxation states that tax liabilities must be clear and non-arbitrary?

    • Equity
    • Convenience
    • Certainty
    • Economy

  18. What term describes high government borrowing pushing up interest rates and reducing private sector investment?

    • Fiscal drag
    • Fiscal slippage
    • Crowding out
    • Crowding in

  19. What term describes taxpayers moving into higher tax brackets because thresholds fail to rise with inflation?

    • Fiscal stance
    • Fiscal neutrality
    • Fiscal drag
    • Fiscal multiplier

  20. Which component of a budget deficit rises during a recession and vanishes during an economic boom?

    • Primary deficit
    • Capital deficit
    • Cyclical deficit
    • Structural deficit

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