public finance fiscal & monetary policy section 2 MCQ Questions & Answers Detailed Explanation
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The following question based on Fiscal Policy, Public Finance and Monetary Policy topic of indian economy mcq
- Repo and Reverse Repo
- Open Market Operations
- Response and Reverse Repo
- Relative Market Operations
(a) 1 and 2
(b) 3 only
(c) 2 only
(d) 1, 2 and 4
The correct answers to the above question in:
Answer: (c)
Open Market Operations refers to the RBI buying and selling eligible securities to regulate the money supply. Traditionally RBI was not resorting to this method.
However, after the large inflow of foreign funds since 1991, RBI has had to step in to sterilize the flow to avoid excess liquidity
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Question : 1
The Goods & Services Tax (GST) will not subsume which among the following central and state taxes?
- Excise duty
- Sales tax
- Income tax
- Value added tax (VAT)
- Luxury tax
a) 2, 3, 4 and 5
b) 1, 2, 4 and 5
c) 3 only
d) 1, 2, 3 and 4
Answer »Answer: (c)
Goods and services tax (GST) will subsume many central and state taxes, such as excise duty, service tax, valueadded tax, sales tax and luxury tax. Income tax is a direct tax, so it is not under GST.
Question : 2
Industrial exit policy means
a) allowing business units to close down
b) forcing business units to move out of congested localities
c) forcing foreign companies to leave India
d) allowing manufacturers to shift their line of products
Answer »Answer: (a)
The term ‘exit’ is the obverse of the term ‘entry’ into the industry. It refers to the right or ability of an industrial unit to withdraw from or leave an industry or in other words to close down.
The proposal to introduce an exit policy was first mooted in 1991 when it was felt that without labour market flexibility, efficient industrialization would be difficult to achieve.
The need for such a policy arises as a result of modernization, technology up-gradation, restructuring as well as the closure of industrial units. Such a policy will allow employers to shift workers from one unit to another and also retrench excess labour.
Question : 3
The existence of a Parallel Economy or Black Money
a) ensures increasing productive investment
b) makes the monetary policies less effective
c) makes the economy more competitive
d) ensures a better distribution of income and wealth
Answer »Answer: (b)
In India, Black money refers to funds earned on the black market, on which income and other taxes have not been paid. Black money leads to black liquidity which is immune to any monetary fiscal policy.
It can move around in the economy creating excess demand in several vulnerable sectors of the economy. Of particular relevance in this context is a policy dominated by sector-wise credit rationing in order to maintain inter-sectoral balances.
The cost of credit is one part of such a policy. So, in nutshell, the existence of a parallel economy erodes the effectiveness of monetary policies.
Question : 4
As per the Economic Survey 2007-2008, which one of the following is the largest source of revenue of the Government of India?
a) Excise Duty
b) Customs Duties
c) Personal income Tax
d) Corporation Tax
Answer »Answer: (d)
As per economic survey 2007-2008 corporation tax is the largest source of revenue of the Government of India.
Question : 5
When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?
a) India’s GDP growth rate increases drastically
b) It may drastically reduce the liquidity to the banking system
c) Foreign Institutional Investors may bring more capital into our country
d) Scheduled Commercial Banks may cut their lending rates
Answer »Answer: (d)
When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points; the Scheduled Commercial Banks may cut their lending rates.
Question : 6
Which of the following is the main aim of Indian Monetary Policy?
- Control inflationary pressure
- Boost economic development
a) 1 only
b) 1 and 2
c) 2 only
d) Neither 1 nor 2
Answer »Answer: (b)
Planned economic development adopted by India required an active monetary policy. The two stated aims of this policy were to boost economic development and control inflationary pressure
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public finance fiscal & monetary policy section 3
public finance fiscal & monetary policy section 4
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public finance fiscal & monetary policy section 6
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