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Federal Finance System in India - General Knowledge Multiple Choice Questions and Answers | Page-8

Questions
71 Freeing the economy from all unnecessary controls and regulations is referred to as
A Freedom
B Liberalisation
C Globalisation
D Privatisation

Answer: Option [B]

Freeing the economy from all unnecessary controls and regulations is referred to as Liberalisation. Removing barriers or restrictions by the government is known as liberalisation. Liberalisation involved deregulation and reduction of government control and greater autonomy of private investment to make it more competitive. The purpose of liberalisation is to unlock the economic potential of the country.

72 The incidence of Tax refers to
A Who pays the Tax?
B How Taxes can be shifted?
C Who bears the burden of Tax?
D Who transfers the Tax burden?

Answer: Option [C]

The incidence of Tax refers to Who bears the burden of Tax? "Tax incidence" (or incidence of tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers.

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73 Economic rent does not arise when the supply of a factor unit is
A Perfectly elastic
B Perfectly inelastic
C Relatively elastic
D Relatively inelastic

Answer: Option [A]

Economic rent does not arise when the supply of a factor unit is Perfectly elastic. Perfectly elastic supply refers to the factors where any decrease in the price would immediately cause the supply to become zero. In such case the rent does not come into the picture.

74 If the main objective of the government is to raise revenue, it should tax commodities with
A High elasticity of demand
B Low elasticity of demand
C Low elasticity of supply
D High income elasticity of demand

Answer: Option [B]

If the main objective of the government is to raise revenue, it should tax commodities with Low elasticity of demand. The Ramsey rule states that commodities with low elasticities of demand should be taxed at higher rates than commodities with high elasticities of demand. However, low-income people might spend a higher proportion of their incomes on commodities with low elasticities of demand (food, clothing, and so on) than might high-income people.

75 Economic growth is dependent mainly on
A Price stability
B Population growth
C Level of consumption
D Level of investment

Answer: Option [D]

Economic growth is dependent mainly on Level of investment. Economic growth is commonly measured in terms of the increase in aggregated market value of additional goods and services produced, using estimates such as GDP.

76 Interest paid by the government on the loans raised is called
A Debt Servicing
B Bridge-loan
C Deficit Financing
D Discounted Budgeting

Answer: Option [A]

Interest paid by the government on the loans raised is called Debt Servicing. Debt service refers to the money that is required to cover the payment of interest and principal on a loan or other debt for a particular time period. The term can apply both to individual debts, such as a home mortgage or student loan, and corporate or government debt, such as business loans and debt-based securities, such as bonds.

77 Who said, “Economics is the Science of Wealth”?
A Keynes
B Adam Smith
C J.S. Mill
D Robbins

Answer: Option [B]

Adam Smith known as the father of economics, thought and defined economics as science of wealth. In his book Wealth of Nation, explains wealth as goods and services which create value in exchange and economics is concerned with generation of wealth according to Smith.

78 Value of output and value added can be distinguished if we know:
A The value of the sales
B The value of net indirect taxes
C The value of intermediate consumption
D The value of consumption of fixed capital

Answer: Option [C]

Value of output and value added can be distinguished if we know the value of intermediate consumption. The difference between value of output and value added is intermediate consumption which is included in value of output but excluded from value added. Intermediate consumption means expenditure incurred on secondary inputs like raw material, power, etc. by a producing unit.

79 Which one of the following is not a ‘cannot of taxation’ according to Adam Smith?
A Canon of simplicity
B Canon of certainty
C Canon of economy
D Canon of convenience

Answer: Option [A]

The correct answer is Canon of simplicity. Adam Smith presented four basic rules and principles of proper tax policy in his famous book The Wealth of Nations. His maxims are often referred to as the four canons of taxation. Namely (1) equity, (2) certainty, (3) convenience, and (4) economy.

80 Indirect taxes by nature are
A Proportional
B Progressive
C Regressive
D Degressive

Answer: Option [C]

Indirect taxes by nature are Regressive. Indirect taxes are regressive in nature as it is generally imposed on the consumption of goods. They are discriminatory in the sense that poor people have to pay as much as rich people.

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