public finance fiscal & monetary policy section 7 Practice Questions Answers Test with Solutions & More Shortcuts

Answer: (d)

Proportional tax is one by which the revenue collected rises proportionally with income.

A tax system could be made approximately proportional by having a uniform rate of income tax with very few exemptions, and indirect taxes levied at similar rates on as many goods and services as possible

Answer: (b)

The Act requires the government to lay before the parliament three policy statements in each financial year namely Medium Term Fiscal Policy Statement; Fiscal Policy Strategy Statement and Macroeconomic Framework Policy Statement.

Answer: (b)

11th Finance Commission was appointed in 1998 under chairmanship of AM Khusro, 12th in 2002 under C Rangarajan, 13th in 2007 under Dr Vijay Kelkar and 14th in 2013 under Yaga Venugopal Reddy.

Answer: (c)

Cross Price Effect refers to the effect on the demand for a given commodity due to a change in the price of a substitute commodity. A change (increase or decrease) in the price of substitutes directly affects the demand for a given commodity.

When the price of substitute goods (say, coffee) rises, demand for the given commodity (say, tea) also rises at the same price.

It leads to a rightward shift in the demand curve of the given commodity. With the decrease in the price of substitute goods (coffee), demand for the given commodity (tea) also decreases. It shifts the demand curve of the given commodity towards the left.

Answer: (b)

An indirect tax is one in which the burden can be shifted to others. The taxpayer is not the tax bearer. The impact and incidence of indirect taxes are on different persons.

Since most of the indirect taxes are not progressive in nature, individuals may not mind paying them. In other words, indirect taxes are generally regressive in nature.

Therefore, individuals would not be de-motivated to work and to save, which may increase investment.