public finance fiscal & monetary policy section 4 MCQ Questions & Answers Detailed Explanation

Answer: (d)

An ad valorem tax (Latin for "according to value") is a tax based on the value of the real estate or personal property. It is more common than a specific tax, a tax based on the quantity of an item, such as cents per kilogram, regardless of price.

It is levied on the basis of the value given by producers. So sometimes, the primary difficulty with such taxation, especially in the case of tariffs, is in establishing a satisfactory value figure.

Answer: (a)

Privatization is the process of transferring ownership of a business, enterprise, agency, public service or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a non-profit organization.

The term can also mean government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management.

There are four main methods of privatization:

1. Share issue privatization (SIP) - selling shares on the stock market;
2. Asset sale privatization - selling an entire organization (or part of it) to a strategic investor, usually by auction or by using the Treuhand model;
3. Voucher privatization - distributing shares of ownership to all citizens, usually for free or at a very low price; and
4. Privatization from below - Start-up of new private businesses in formerly socialist countries.

Answer: (c)

Benjamin Franklin’s utterance, “In this world, nothing can be said to be certain, except death and taxes,” when applied in economics means that the largest amount of revenue raised by governments comes from taxation.

The proverb draws on the actual inevitability of death to highlight the difficulty in avoiding the burden of taxes.

Answer: (b)

The RBI implements the monetary policy through open market operations, bank rate policy, reserve system, credit control policy, moral persuasion and through many other instruments.

Answer: (b)

Fourteenth finance commission would recommend on sharing of tax proceeds between the Centre and the states which will apply for a five-year period beginning April 1, 2015.

It will suggest steps for the pricing of public utilities such as electricity and water. It would review the state of finances, deficit and debt levels of the Centre and states.

Answer: (b)

A progressive tax is a tax by which the tax rate increases as the taxable base amount increases.” Progressive” describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate.

It can be applied to individual taxes or to a tax system as a whole; a year, multi-year, or lifetime.

Progressive taxes attempt to reduce the tax incidence of people with a lower ability-to-pay, as they shift the incidence increasingly to those with a higher ability-to-pay.