public finance fiscal & monetary policy section 7 MCQ Questions & Answers Detailed Explanation
MOST IMPORTANT indian economy mcq - 7 EXERCISES
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The following question based on Fiscal Policy, Public Finance and Monetary Policy topic of indian economy mcq
(a) Reduce interest rate and increase income tax rates
(b) Increase interest rates and increase Income tax rates
(c) Reduce interest rates and decrease income tax rates
(d) Increase interest rates and decrease income tax rates
The correct answers to the above question in:
Answer: (b)
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Question : 1
With reference to ‘Cash Reserve Ratio’, which of the following statements is/are correct?
- The RBI varies Cash Reserve Ratio to change the liquidity of the market
- CRR is subject to frequent changes as RBI intervenes from time to time to correct monetary or exchange rate imbalances
- CRR currently is 4%
- RBI is empowered to fix the CRR at a rate ranging between three per cent and 15 per cent
a) 1 only
b) 3 only
c) 1 and 2
d) 1, 2, 3 and 4
Answer »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%
Question : 2
Consider the following options regarding recommendations of Shyamala Gopinath Committee on post offices:
- The interest rate on fixed deposits for one and two years has been increased to 8.4% from the present 8.2%.
- The interest rate on Public Provident Fund (PPF) has been kept unchanged at 8.7 %.
- The rate on National Savings Scheme (NSC) with 5 and 10-year maturities remains unchanged.
- Rate on the five-year Monthly Income Scheme (MIS) changed to 10%.
a) 3 and 4
b) 1, 2 and 3
c) 1 and 2
d) 1, 2, 3 and 4
Answer »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%.
Question : 3
The ‘Canons of Taxation’ were propounded by
a) Dalton
b) Adam Smith
c) Edwin Canon
d) J.M. Keynes
Answer »Answer: (b)
Canons of Taxation were first originally laid down by economist Adam Smith in his famous book "The Wealth of Nations".
In this book, Adam smith only gave four canons of taxation:
- canon of equity;
- canon of certainty;
- canon of convenience; and
- canon of economy.
Question : 4
Which of the following is the rate at which RBI lends to commercial banks?
- Corporate rate
- Economy rate
- Bank rate
- Growth rate
a) 1 only
b) 3 only
c) 1 and 2
d) 4 only
Answer »Answer: (b)
Bank rate is an instrument of monetary policy which is the rate at which RBI lends to commercial banks
Question : 5
Taxation is a tool of
a) Wage policy
b) Fiscal policy
c) Monetary policy
d) Price policy
Answer »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.
Question : 6
The incidence of sales tax falls on
a) Producers
b) Wholesale dealers
c) Consumers
d) Retail dealers
Answer »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.
GET Fiscal Policy, Public Finance and Monetary Policy PRACTICE TEST EXERCISES
public finance fiscal & monetary policy section 1
public finance fiscal & monetary policy section 2
public finance fiscal & monetary policy section 3
public finance fiscal & monetary policy section 4
public finance fiscal & monetary policy section 5
public finance fiscal & monetary policy section 6
public finance fiscal & monetary policy section 7
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