Practice Public finance fiscal and monetary policy - indian economy mcq Online Quiz (set-1) For All Competitive Exams

It GST being levied then excise, VAT, Octroi, Service Tax etc will likely go away to make a single taxation system. GST in India will be divided between state & centre.

Monetary policy refers to the set of measures adopted by the central bank (RBI) for monetary management

Taxation is used for mobilizing and channelizing resources for productive investment. It can also be used as a measure to promote equity and reduce disparities or to encourage or discourage consumption of particular items

Fiscal policy comprises of several major themes

Fiscal deficit is budget deficit plus borrowings and other liabilities.

Fiscal deficit = Budget deficit + Government’s market borrowing and liabilities.

The fiscal deficit situation shows whether the government is spending beyond its income. India has, unfortunately, been a country prone to constant and high fiscal deficit situations.

A high fiscal deficit implies high indebtedness of the government and a deficit above 3% in the Indian context means an alarming situation for the government finances

Non-plan expenditure covers

1. interest payments,
2. subsidies (mainly on food and fertilisers),
3. wage and salary payments to government employees,
4. grants to States and Union Territories governments,
5. pensions,
6. police,
7. economic services in various sectors,
8. defence,
9. loans to public enterprises,
10. loans to States, Union Territories and foreign governments.

In under-developed countries, deficit-financing has been considered essential for financing the plans of economic development. It is used as a tool for meeting the financial needs of the government, especially in times of war.

It is used for the mobilization of surplus, non-utilized and idle resources in the economy. It is also used as an instrument of economic policy for removing the conditions of depression 4 to raise the level of output and employment.

There are two types of budgets

i.e., Revenue budget and Capital budget. The revenue budget contains all current receipts, such as taxation, (central excise, customs duty, corporation tax) dividends of public sector units (PSU’s) and expenditure of the government.

The capital budget consists of all capital receipts and expenditures such as domestic and foreign loans, loan repayment, foreign and etc.

Primary deficit is fiscal deficit minus interest payments. India started using this term in 1997- 98.

Primary deficit is considered a very useful tool in helping bring more transparency in the government’s pattern of expenditure. It shows the current state of government finances.

If interest payments are deducted from a fiscal deficit, then it will obviously show a lesser deficit for that year as the interest payments are on account of loans taken in the past and not in the present year

The primary market is that part of the capital markets that deals with the issuance of new securities.

Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is the market for new long term equity capital.

The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

In terms of individual income and wealth, a regressive tax imposes a greater burden on the poor than on the rich.

There is an inverse relationship between the tax rate and the taxpayer’s ability to pay, as measured by assets, consumption, or income.

These taxes tend to reduce the tax burden of the well-to-do, as they shift the burden disproportionately to the needy.

Treasury bills are instruments of short-term borrowing by the Government of India, issued as promissory notes under discount.

The interest received on them is the discount which is the difference between the price at which they are issued and their redemption value. They have assured yield and negligible risk of default. They are thus useful in managing short-term liquidity.

At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.

Nicholas Kaldor’s seminal work, titled ‘An Expenditure Tax,’ was brought out in 1955. Kaldor asked to levy a tax on a person’s expenditure (consumption), instead of on his income.

When expenditure is made the basis of taxation, the problems created by the non-comparability of various types of accruals of wealth resolve themselves. This was his major argument in favour of an expenditure tax.

The word "underwriter" is said to have come from the practice of having each risk-taker write his or her name under the total amount of risk that he or she was willing to accept at a specified premium.

In a way, this is still true today, as new issues are usually brought to market by an underwriting syndicate in which each firm takes the responsibility (and risk) of selling its specific allotment.

The Department of Economic Affairs (DEA) under Ministry of Finance is the nodal agency of the Union Government to formulate and monitor country’s economic policies and programmes having a bearing on domestic and international aspects of economic management.

A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households. The annual percentage change in a CPI is used as a measure of inflation.

A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values.

SLR or the Statutory Liquidity Ratio is that ratio of total deposits which a commercial bank has to maintain with itself at any given point of time in the form of liquid assets like cash in hand, current balances with other banks and first-class securities which can be turned into cash (gold, cash or other approved securities).

This ratio at present is 25%. Some assets have to be in liquid form to take care of financial emergencies which every bank has to face. It regulates the credit growth in India.