public finance fiscal & monetary policy section 4 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

Printing currency is usually the last resort for the government in managing its deficit. It might help the government in times of need but it should be undertaken only in case of extreme necessity as it has many damaging effects on the economy.

It increases inflation proportionally. It may also lead to pressure on the government for an upward revision in salaries of government employees, which in turn will lead to an increase of government’s expenditure, further necessitating printing of currency and more inflation

Answer: (b)

A higher international interest rate will decrease FDI since it means a higher cost of funds in the international market and vice versa. Interest rate is a measure of the cost of capital.

A higher interest rate implies more costly investment and, therefore, the higher the interest rate, the more it is likely to defer FDI and the relationship between FDI and the interest rate is expected to be negative.

Love and Lage-Hidalgo (2000) and Erdal and Tatoglu (22002), amongst others, find that an increase in the interest rate leads to a decrease in FDI. Interest rate and FDI can both be the cause and effect of others.

Answer: (c)

The DEA or the Department of Economic Affairs is also responsible for preparation and presentation to the Parliament of Central Budget and the Budgets for the State Governments under President’s Rule and Union Territory Administration.

Answer: (a)

Answer: (c)

In India, the professional tax is imposed at the state level. However, not all the states impose this tax. Business owners, working individuals, merchants and people carrying out various occupations comes under the purview of this tax. Professional tax is levied by particular Municipal Corporations.