The Dec 9th Static Quiz on Economy (Fiscal Policy)
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The Dec 9th Static Quiz on Economy (Fiscal Policy)
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- Question 1 of 5
1. Question
Which one of the following statements appropriately describes the “fiscal stimulus”?( UPSC Pre 2011)
CorrectAns;- b) It is an intense affirmative action of the Government to boost economic activity in the country
Explanation;-
• The Fiscal stimulus refers to increasing government consumption or transfers or lowering taxes.
• Effectively this means increasing the rate of growth of public debt, except that particularly Keynesians often assume that the stimulus will cause sufficient economic growth to fill that gap partially or completely.
IncorrectAns;- b) It is an intense affirmative action of the Government to boost economic activity in the country
Explanation;-
• The Fiscal stimulus refers to increasing government consumption or transfers or lowering taxes.
• Effectively this means increasing the rate of growth of public debt, except that particularly Keynesians often assume that the stimulus will cause sufficient economic growth to fill that gap partially or completely. - Question 2 of 5
2. Question
The Fiscal consolidation is one of the objectives of India’s economic policy. Which of the following would help in fiscal consolidation ?
1) Increasing taxes
2) Getting more loans
3) Reducing subsidies
Select the correct answer using the codes given below.CorrectAns;- b) 1 and 3 only
Explanation;-
• The Fiscal consolidation is a reduction in the underlying fiscal deficit.
• So, by increasing revenues and decreasing expenditure, we can undertake fiscal consolidation.
• While getting more loans may increase receipts, it will not help in fiscal consolidation as that loan has to be repaid back along with interest.
• So loans add more to the expenditure than it contributes to receipts.
• Increasing taxes and reducing subsidies will of course increase revenues and decrease expenditure respectively contributing to fiscal consolidation.
IncorrectAns;- b) 1 and 3 only
Explanation;-
• The Fiscal consolidation is a reduction in the underlying fiscal deficit.
• So, by increasing revenues and decreasing expenditure, we can undertake fiscal consolidation.
• While getting more loans may increase receipts, it will not help in fiscal consolidation as that loan has to be repaid back along with interest.
• So loans add more to the expenditure than it contributes to receipts.
• Increasing taxes and reducing subsidies will of course increase revenues and decrease expenditure respectively contributing to fiscal consolidation.
- Question 3 of 5
3. Question
Which of the following refers to the term “Fiscal Drag”?
CorrectAns;- d) Deflationary pressures because of progressive taxation
Explanation;-
• The Fiscal Drag is the deflationary effect of a progressive taxation system on a country’s economy.
• As wages rise, a higher proportion of income is paid in tax.
• The Fiscal drag is the tendency of revenue from taxation to rise as a share of GDP in a growing economy.
• The Fiscal drag may happen due to inflation or fiscal policies of the government.
• The Fiscal drag is normally associated with progressive tax rates.
IncorrectAns;- d) Deflationary pressures because of progressive taxation
Explanation;-
• The Fiscal Drag is the deflationary effect of a progressive taxation system on a country’s economy.
• As wages rise, a higher proportion of income is paid in tax.• The Fiscal drag is the tendency of revenue from taxation to rise as a share of GDP in a growing economy.
• The Fiscal drag may happen due to inflation or fiscal policies of the government.
• The Fiscal drag is normally associated with progressive tax rates. - Question 4 of 5
4. Question
Along with the Budget, the Finance Minister also places other documents before the Parliament which include
‘The Macro Economic Framework Statement’. The aforesaid document is presented because this is mandated by (UPSC 2020 Pre)CorrectAns;- d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003
Explanation;-
• Every year, a macro-economic framework statement is presented before Parliament at the time of Union Budget presentation.• This is under Section 3(5) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003.
• The FRBM Act instructs the government to make an assessment of growth prospects for the economy with regards to specific underlying assumptions.• The statement contains an overview of the economy.
• This includes an assessment regarding the GDP growth rate, fiscal balance of the central government and the external sector balance of the economy.
• The Monetary management and financial intermediation, banking sector, agriculture and industry are also covered by the statement.
• The 2019-20 FRBM, for example, recorded, under agriculture, total production of food grain, rice, wheat, milk, fish, and fish products.• The statement ends with a section highlighting prospects for the economy in the future.
IncorrectAns;- d) Provisions of the Fiscal Responsibility and Budget Management Act, 2003
Explanation;-
• Every year, a macro-economic framework statement is presented before Parliament at the time of Union Budget presentation.• This is under Section 3(5) of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003.
• The FRBM Act instructs the government to make an assessment of growth prospects for the economy with regards to specific underlying assumptions.• The statement contains an overview of the economy.
• This includes an assessment regarding the GDP growth rate, fiscal balance of the central government and the external sector balance of the economy.
• The Monetary management and financial intermediation, banking sector, agriculture and industry are also covered by the statement.
• The 2019-20 FRBM, for example, recorded, under agriculture, total production of food grain, rice, wheat, milk, fish, and fish products.• The statement ends with a section highlighting prospects for the economy in the future.
- Question 5 of 5
5. Question
Which of the following is not an example of fiscal policy?
CorrectAns;- d) Higher interest rates correct
Explanation;-
• The two major examples of expansionary fiscal policy are tax cuts and increased government spending.
• Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down of budget surpluses.
• The higher intertest rate is not an example of fiscal policy, Monetary policy involves the management of the money supply and interest rates by central banks.
THE END.
IncorrectAns;- d) Higher interest rates correct
Explanation;-
• The two major examples of expansionary fiscal policy are tax cuts and increased government spending.
• Both of these policies are intended to increase aggregate demand while contributing to deficits or drawing down of budget surpluses.
• The higher intertest rate is not an example of fiscal policy, Monetary policy involves the management of the money supply and interest rates by central banks.
THE END.
