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

Answer: (b)

Answer: (d)

Every commercial bank is required to keep a certain percentage of its demand and time liabilities (deposits) with the RBI (either as cash or book balance).

The RBI varies this ratio to change the liquidity of the market. RBI is empowered to fix the CRR at a rate ranging between three per cent and 15 per cent.

Like the Bank Rate, CRR is also subject to frequent changes as RBI intervenes from time to time to correct monetary or exchange rate imbalances. This ratio, currently, is 4%

Answer: (b)

As per the Shyamala Gopinath Committee’s recommendations, the interest rate on fixed deposits for one and two years has been increased to 8.4% from the present 8.2%.

The rate on National Savings Scheme (NSC) with 5 and 10-year maturities also remains unchanged at 8.5% and 8.8%. The rate on the five-year Monthly Income Scheme (MIS) remains the same at 8.4%.

The interest rate on the Public Provident fund (PPF) has been kept unchanged at 8.7%.

Answer: (b)

In economics, fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. The two main instruments of fiscal policy are government taxation and expenditure.

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: (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