SBI PO Prelims Full Mock Test 03

1. Read the following passage carefully and answer the questions given after it. Few things divide economists as sharply as the question of how much a government should borrow. On one side are those who warn that high public debt is a burden passed on to future generations. Every rupee borrowed today, they argue, must be repaid with interest tomorrow, and the money spent on interest cannot be spent on schools, hospitals or roads. When debt grows faster than the economy, investors may begin to doubt the government's ability to repay, pushing up interest rates for everyone. On the other side are those who see borrowing as a tool rather than a sin. A government that borrows to build a highway or a power plant, they point out, is creating assets that will help the economy grow for decades. In a slowdown, when households and firms cut their spending, public borrowing can keep demand alive and prevent a temporary dip from turning into a long recession. Both sides agree on more than their arguments suggest. Few would defend borrowing to pay for wasteful spending, and few would insist on cutting investment in the middle of a crisis. The real debate is about balance and timing: how much to borrow, for what purpose, and when to start bringing debt down. What matters most, perhaps, is credibility. A government that borrows heavily in hard times but has a clear and believable plan to reduce debt when growth returns will usually find lenders willing to support it. One that borrows without a plan, or keeps changing its targets, risks losing that trust, and with it the freedom to act when the next crisis comes.

   Q1.According to the first group of economists, why is high public debt harmful?

   • A.It always causes inflation to fall
   • B.It reduces the number of taxpayers
   • C.Interest payments use up money that could be spent on public services
   • D.It makes exports cheaper
   • E.It forces banks to close

2. Q2.What may happen when debt grows faster than the economy, according to the passage?

   • A.The government will stop collecting taxes
   • B.Investors may doubt repayment and interest rates may rise
   • C.Interest rates will fall to zero
   • D.Households will save more
   • E.Exports will double

3. Q3.Why does the second group see borrowing as a tool?

   • A.Borrowing can fund assets and support demand during a slowdown
   • B.Borrowing never has to be repaid
   • C.Borrowing reduces all taxes
   • D.Borrowing is free of interest
   • E.Borrowing replaces private investment entirely

Start the test to answer these. Correct answers and explanations are shown after you submit.