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

Questions : Which of the following taxes is not collected by the Central Government ?

(a) Excise duty

(b) Customs duty

(c) Income tax

(d) Professional tax

The correct answers to the above question in:

Answer: (d)

A professional tax, also known as an occupation tax or a professional privilege tax, is a tax that a professional must pay to receive the right to practice a professional service.

Many state and local governments collect professional tax, and a professional who has clients in more than one state may owe professional taxes in several states.

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Read more public finance fiscal and monetary policy Based Indian Economy Questions and Answers

Question : 1

Which are the pre-requisites required by the Indian economy to implement convertibility of rupee on trade account as suggested by the Rangarajan Committee?

  1. There should be comfortable foreign exchange resources
  2. Low rate of inflation.
  3. Mechanism by which the government can pass on the changes in the price of imported goods to the consumers
  4. SLR and CRR must be low.

a) 1 and 2

b) 1 and 4

c) 1, 2 and 3

d) All of the above

Answer: (c)

Question : 2

Match columns A and B 

Column A Column B
I. Planned expenditure a. 2,21,733 Crores
II. Non-Planned expenditure b. 4,65,277 Crores 
III. Tax revenue c. 13,12,200 Crores
IV. Non-tax revenue d. 9,19,842 Crores
Codes: I II III IV

a) I-c, II-a, III-b, IV-d

b) I-a, II-c, III-d, IV-b

c) I-b, II-c, III-d, IV-a

d) I-d, II-c, III-d, IV-a

Answer: (c)

Question : 3

The banks are required to maintain a certain ratio between their cash in hand and total assets. This is called:

a) SBR (Statutory Bank Ratio)

b) CLR (Central Liquid Reserve)

c) SLR (Statutory Liquid Ratio)

d) CBR (Central Liquid Reserve)

Answer: (c)

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.

Question : 4

The sales tax you pay while purchasing a toothpaste is a

a) tax imposed by the Central Government

b) tax imposed and collected by the State Government

c) tax imposed by the Central Government but collected by the State Government

d) tax imposed by the State Government but collected by the Central Government

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.

Question : 5

What does a Leasing Company provide ?

a) Technical consultancy and experts for a fee

b) Legal guidance in establishing an enterprise

c) Machinery and capital equipment on hire

d) Office accommodation on hire

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.

Question : 6

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: (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.

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