public finance fiscal & monetary policy section 7 MCQ Questions & Answers Detailed Explanation

Answer: (c)

The New Economics Policy was introduced by Vladimir Ilyich Lenin (1870-1924). He was the founder of modern communist Russia. He was the leader of the Soviet Revolution of October 1917.

He liberated the country from the Czars and became Head of its first Communist Government (1917-1924). He dedicated himself to the cause of the workers’ revolution.

Answer: (a)

Customs duty is the tax imposed on commodities imported into India (import duty) or those exported from India (export duty).

Since imposing duties on exports reduced the competitive position of the country, the government withdrew export duties

Answer: (c)

In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare.

Tax incidence is said to “fall” upon the group that ultimately bears the burden of, or ultimately has to pay, the tax. The key concept is that the tax incidence or tax burden does not depend on where the revenue is collected but on the price elasticity of demand and price elasticity of supply.

A tax on the sale of goods (sales tax, excise tax) will ultimately be paid by either the consumer or the firm based on elasticities, regardless of who the government actually levies the tax on. If the consumer ultimately pays the tax, it means that the tax incidence falls on the consumer.

If the firm ultimately pays the tax, it means that the tax incidence ultimately falls on the firm.

Answer: (b)

An indirect tax is one in which the burden can be shifted to others. The taxpayer is not the tax bearer. The impact and incidence of indirect taxes are on different persons.

Since most of the indirect taxes are not progressive in nature, individuals may not mind paying them. In other words, indirect taxes are generally regressive in nature.

Therefore, individuals would not be de-motivated to work and to save, which may increase investment.

Answer: (c)

Cross Price Effect refers to the effect on the demand for a given commodity due to a change in the price of a substitute commodity. A change (increase or decrease) in the price of substitutes directly affects the demand for a given commodity.

When the price of substitute goods (say, coffee) rises, demand for the given commodity (say, tea) also rises at the same price.

It leads to a rightward shift in the demand curve of the given commodity. With the decrease in the price of substitute goods (coffee), demand for the given commodity (tea) also decreases. It shifts the demand curve of the given commodity towards the left.

Answer: (b)

11th Finance Commission was appointed in 1998 under chairmanship of AM Khusro, 12th in 2002 under C Rangarajan, 13th in 2007 under Dr Vijay Kelkar and 14th in 2013 under Yaga Venugopal Reddy.