public finance fiscal & monetary policy section 2 MCQ Questions & Answers Detailed Explanation

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.

Answer: (c)

Leasing is a process by which a firm can obtain the use of certain fixed assets for which it must pay a series of contractual, periodic, tax-deductible payments.

Equipment leasing is a financing alternative for businesses to acquire needed machinery while saving precious operating capital. Leasing provides opportunities to use available money to operate assets that can make more money over time.

There are many distinct differences between buying and leasing, regardless if such a transaction or agreement applies to property, machinery, equipment or other assets.

The difference lies in that a lease is conceptually very similar to the principle of “borrowing.” The ownership of the leased property (be it land, equipment, merchandise, or etc.) is not transferred under the terms of the lease agreement.

Answer: (b)

Taxes on tooth paste come under GST which is administered by State government.Sales tax is paid to sales tax authority in the state from where the goods are moved.

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.

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

Answer: (d)

As per economic survey 2007-2008 corporation tax is the largest source of revenue of the Government of India.