public finance fiscal & monetary policy section 2 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

As per economic survey 2007-2008 corporation tax is the largest source of revenue of the Government of India.

Answer: (c)

Open Market Operations refers to the RBI buying and selling eligible securities to regulate the money supply. Traditionally RBI was not resorting to this method.

However, after the large inflow of foreign funds since 1991, RBI has had to step in to sterilize the flow to avoid excess liquidity

Answer: (c)

Goods and services tax (GST) will subsume many central and state taxes, such as excise duty, service tax, valueadded tax, sales tax and luxury tax. Income tax is a direct tax, so it is not under GST.

Answer: (a)

The term ‘exit’ is the obverse of the term ‘entry’ into the industry. It refers to the right or ability of an industrial unit to withdraw from or leave an industry or in other words to close down.

The proposal to introduce an exit policy was first mooted in 1991 when it was felt that without labour market flexibility, efficient industrialization would be difficult to achieve.

The need for such a policy arises as a result of modernization, technology up-gradation, restructuring as well as the closure of industrial units. Such a policy will allow employers to shift workers from one unit to another and also retrench excess labour.

Answer: (b)

In India, Black money refers to funds earned on the black market, on which income and other taxes have not been paid. Black money leads to black liquidity which is immune to any monetary fiscal policy.

It can move around in the economy creating excess demand in several vulnerable sectors of the economy. Of particular relevance in this context is a policy dominated by sector-wise credit rationing in order to maintain inter-sectoral balances.

The cost of credit is one part of such a policy. So, in nutshell, the existence of a parallel economy erodes the effectiveness of monetary policies.