public finance fiscal & monetary policy section 7 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 refers to the freedom for firms and residents to freely buy into overseas assets?
  1. Capital Account Consumption
  2. Capital Across Convertibility
  3. Capital Account Continuity
  4. Capital Account Convertibility

(a) 1 only

(b) 3 only

(c) 1 and 2

(d) 4 only

The correct answers to the above question in:

Answer: (d)

A currency is said to be convertible when it can be freely exchanged for another currency at market rates.

Transaction of current account includes dealing with payments relating to foreign trade, travel and other services. Capital account deals with transactions in financial assets.

While India has made the Indian rupee fully convertible on the current account, it is yet to accept capital account convertibility as a goal.

Broadly, capital account convertibility would mean freedom for firms and residents to freely buy into overseas assets such as equity, bonds, property, and acquire ownership of overseas firms besides free repatriation of proceeds by foreign investors

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

Question : 1

Consider the following recommendations of The Shome Committee which were appointed to look into the guidelines of General Anti-Avoidance Rules (GAAR):

  1. To correct anomalies in the statutes of tax laws
  2. To protect the tax base from abusive tax planning schemes with the purpose to avoid tax
  3. To correct technical/procedural defects that impair a substantive law
Choose the correct option from the codes given below:

a) 3 only

b) 2 only

c) 1 only

d) 1, 2 and 3

Answer: (d)

The Shome Committee which was appointed to look into the guidelines of General Anti-Avoidance Rules (GAAR) has recommended retrospective application of tax law only in rarest of rare cases.

It recommends:

  1. To correct anomalies in tax laws,
  2. to protect the tax base from abusive tax planning schemes with a purpose
  3. to avoid tax
  4. to correct technical/ procedural defects.

Question : 2

Globalisation does not include

a) disinvestment of Public Sector Equity

b) free flow of FDI

c) reduction in import duties

d) abolition of import licensing

Answer: (a)

Question : 3

VAT is imposed:

a) On all stages between production and sale

b) On first stage of production

c) Directly on Consumer

d) On final stage of production

Answer: (a)

Value Added Tax (VAT) is imposed on the value added to each commodity by a firm during all stages of production and distribution.

In simple terms, it is a fee assessed against businesses at each step of the production and distribution process, usually whenever a product is resold or value is added to it.

Value-added taxation in India was introduced as an indirect value-added tax (VAT) into the Indian taxation system from 1 April 2005.

Question : 4

The ‘Canons of Taxation’ were propounded by

a) Dalton

b) Adam Smith

c) Edwin Canon

d) J.M. Keynes

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:

  1. canon of equity;
  2. canon of certainty;
  3. canon of convenience; and
  4. canon of economy.

Question : 5

Consider the following options regarding recommendations of Shyamala Gopinath Committee on post offices:

  1. The interest rate on fixed deposits for one and two years has been increased to 8.4% from the present 8.2%.
  2. The interest rate on Public Provident Fund (PPF) has been kept unchanged at 8.7 %.
  3. The rate on National Savings Scheme (NSC) with 5 and 10-year maturities remains unchanged.
  4. Rate on the five-year Monthly Income Scheme (MIS) changed to 10%.
Choose the correct option from the codes given below:

a) 3 and 4

b) 1, 2 and 3

c) 1 and 2

d) 1, 2, 3 and 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%.

Question : 6

With reference to ‘Cash Reserve Ratio’, which of the following statements is/are correct?

  1. The RBI varies Cash Reserve Ratio to change the liquidity of the market
  2. CRR is subject to frequent changes as RBI intervenes from time to time to correct monetary or exchange rate imbalances
  3. CRR currently is 4%
  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: (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%

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