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Indian Fiscal System General Awareness Multiple Choice Questions and Answers | Page-4

Questions
31 The main reason for low growth rate in India, inspite of high rate of saving and capital formation is:
A High capital/output ratio
B Low capital/output ratio
C High birth rate
D Low level of foreign investment

Answer: Option [A]

The main reason for low growth rate in India, inspite of high rate of saving and capital formation is High capital/output ratio. The main reason for low growth rate in india, in spite of high rate of savings and capital formation is high birth rate, low level of foreign aid, low capital / output ratio and high capital or output ratio.

32 The situation ‘Liquidity trap’ refers to:
A Because of price rate declination people wish to hold only cash
B People want to hold only cash because there is too much of liquidity in the economy
C The rate of interest is so low that no one wants to hold interest bearing assets and people wants to hold cash
D There is an excess of foreign exchange reserves in the economy leading to excess of money supply

Answer: Option [C]

The correct answer is the rate of interest is so low that no one wants to hold interest bearing assets and people wants to hold cash. Liquidity trap is a situation when interest rate is so low that people prefer to hold money rather than invest it. It is the extreme effect of monetary policy. Consumers choose to avoid bonds and keep their funds in savings because of the prevailing belief that interest rates will soon rise.

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33 The tax whose share in overall taxation revenue has gone up rapidly during the planning period is:
A Income tax
B Wealth tax
C Land revenue tax
D Tax on production

Answer: Option [D]

The correct answer is Tax on production. The tax whose share in overall taxation revenue has gone up rapidly during the planning period is Tax on production.

34 The most appropriate measure of a country’s economic growth is the:
A Per capita real income
B Net domestic product
C Gross domestic product
D None of the above

Answer: Option [A]

The most appropriate measure of a country’s economic growth is the Per capita real income. Per capita income or average income measures the average income earned per person in a given area in a specified year. It is calculated by dividing the area's total income by its total population. It is used to measure a country's standard of living thus a better indicator of economic growth.

35 Value-added tax is:
A A special tax levied by states on products from other states
B Tax on final consumption collected at the consumption stage
C An ad valorem tax on final consumption collected at the manufacturing level
D An indirect tax on the domestic consumption of goods collected at all stages between production and the point of final sale

Answer: Option [D]

Value-added tax is An indirect tax on the domestic consumption of goods collected at all stages between production and the point of final sale. A value-added tax (VAT) is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at the point of retail sale. In other words, its is an ad valorem tax on domestic final consumption collected at all stages between production and point of final sale.

36 How does the consumer benefit with VAT ?
A With the abolition of the sales tax
B As compared to other taxes, there is a less chance of tax evasion. VAT minimizes tax evasion due to its catch-up effect. It reduces the cost of production
C Due to the exemption of small businesses from the tax within certain limits prescribed by the State
D None of these

Answer: Option [B]

The correct answer is As compared to other taxes, there is a less chance of tax evasion. VAT minimizes tax evasion due to its catch-up effect. It reduces the cost of production.

37 The expenditure expensed immediately is known as:
A Revenue expenditure
B capital expenditure
C current expenditure
D None of these

Answer: Option [A]

The expenditure expensed immediately is known as Revenue expenditure. Revenue expenditures are short-term expenses used in the current period or typically within one year.

38 When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean ?
A The commercial banks will have more money to lend
B The commercial banks will have less money to lend
C The Reserve Bank of India will have less money to lend
D The Union Government will have less money to lend

Answer: Option [B]

The correct answer is the commercial banks will have less money to lend. CRR refers to the percentage of deposits banks have to keep as reserve (in cash). This reserve sum is not available for banks for lending and thus if the CRR increases, banks will have less money to lend.

39 Economically developed countries are referred to as:
A Countries earning huge industrial profits
B Countries proficient in trade and export
C Countries having large per capita income
D Countries advanced in technology

Answer: Option [C]

Economically developed countries are referred to as countries having large per capita income.

40 Usually two months advanced grants made by the house to enable the government functions to carry on until the voting of the demands for grants and passing of the General Appropriation Bill is called:
A Vote on account
B Complementary budget
C Supplementary budget
D Contingency budget

Answer: Option [A]

Usually two months advanced grants made by the house to enable the government functions to carry on until the voting of the demands for grants and passing of the General Appropriation Bill is called vote on account. Vote on Account is a grant in advance to enable the government to carry on until the voting of demands for grants and the passing of the Appropriation Bill and Finance Bill. This enables the government to fund its expenses for a short period of time or until a full-budget is passed.

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