Insights Static Quiz -380, 2019
Economy
INSIGHTS STATIC QUIZ 2019
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Question 1 of 5
1. Question
Consider the following statements about ‘Fiat Money’.
- It is a currency that a government has declared to be legal tender.
- It is backed by a physical commodity.
- Its value increases during hyperinflation.
Which of the above statements is/are incorrect?
Correct
Solution: b)
Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material from which the money is made. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation.
Incorrect
Solution: b)
Fiat money is currency that a government has declared to be legal tender, but it is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material from which the money is made. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation.
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Question 2 of 5
2. Question
Which of the following statements best describes ‘fiscal consolidation’?
Correct
Solution: b)
Fiscal Consolidation refers to the policies undertaken by Governments (national and sub-national levels) to reduce their deficits and accumulation of debt stock.
FISCAL CONSOLIDATION is a process where government’s FISCAL health is getting improved and is indicated by reduced FISCAL deficit. Improved tax revenue realization and better aligned expenditure are the components of FISCAL CONSOLIDATION as the FISCAL deficit reaches at a manageable level.
Incorrect
Solution: b)
Fiscal Consolidation refers to the policies undertaken by Governments (national and sub-national levels) to reduce their deficits and accumulation of debt stock.
FISCAL CONSOLIDATION is a process where government’s FISCAL health is getting improved and is indicated by reduced FISCAL deficit. Improved tax revenue realization and better aligned expenditure are the components of FISCAL CONSOLIDATION as the FISCAL deficit reaches at a manageable level.
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Question 3 of 5
3. Question
Consider the following statements.
- A cess is levied on the tax payable and not on the taxable income.
- A cess can be levied on only direct tax.
- Unlike a tax, a cess is levied to meet a specific purpose.
Which of the above statements is/are correct?
Correct
Solution: c)
A cess is levied on the tax payable and not on the taxable income. In a sense, for the taxpayer, it is equivalent to a surcharge on tax.
A cess can be levied on both direct and indirect taxes.
Unlike a tax, a cess is levied to meet a specific purpose; its proceeds cannot be spent on any kind of government expenditure. Recent examples of cess are: infrastructure cess on motor vehicles, clean environment cess, Krishi Kalyan cess (for the improvement of agriculture and welfare of farmers), and education cess. To make the point clear, the proceeds from the education cess cannot be used for cleaning the environment and vice versa.
Incorrect
Solution: c)
A cess is levied on the tax payable and not on the taxable income. In a sense, for the taxpayer, it is equivalent to a surcharge on tax.
A cess can be levied on both direct and indirect taxes.
Unlike a tax, a cess is levied to meet a specific purpose; its proceeds cannot be spent on any kind of government expenditure. Recent examples of cess are: infrastructure cess on motor vehicles, clean environment cess, Krishi Kalyan cess (for the improvement of agriculture and welfare of farmers), and education cess. To make the point clear, the proceeds from the education cess cannot be used for cleaning the environment and vice versa.
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Question 4 of 5
4. Question
Consider the following statements.
- Direct taxes on income are compulsory transfers of private incomes (both individual and firm) to the government to meet collective aims.
- The proceeds of all taxes and cesses are credited in the Consolidated Fund of India (CFI).
- While the tax proceeds are shared with the States and Union Territories according to the guidelines by the Finance Commission, the cess proceeds need not be shared with them.
Which of the above statements is/are correct?
Correct
Solution: d)
Direct taxes on income are compulsory transfers of private incomes (both individual and firm) to the government to meet collective aims such as the expansion of schooling infrastructure, an increase in health facilities, or an improvement of transportation infrastructure.
From the point of view of the government, the proceeds of all taxes and cesses are credited in the Consolidated Fund of India (CFI), an account of the Government of India. It constitutes all receipts, expenditures, borrowing and lending of the government. The CFI details are published annually as a part of the Union Budget documents. And the approval of Parliament is necessary to withdraw funds from the CFI. While the tax proceeds are shared with the States and Union Territories according to the guidelines by the Finance Commission, the cess proceeds need not be shared with them.
To meet specific socioeconomic goals, a cess is preferred over a tax because it is relatively easier to introduce, modify, and abolish.
Incorrect
Solution: d)
Direct taxes on income are compulsory transfers of private incomes (both individual and firm) to the government to meet collective aims such as the expansion of schooling infrastructure, an increase in health facilities, or an improvement of transportation infrastructure.
From the point of view of the government, the proceeds of all taxes and cesses are credited in the Consolidated Fund of India (CFI), an account of the Government of India. It constitutes all receipts, expenditures, borrowing and lending of the government. The CFI details are published annually as a part of the Union Budget documents. And the approval of Parliament is necessary to withdraw funds from the CFI. While the tax proceeds are shared with the States and Union Territories according to the guidelines by the Finance Commission, the cess proceeds need not be shared with them.
To meet specific socioeconomic goals, a cess is preferred over a tax because it is relatively easier to introduce, modify, and abolish.
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Question 5 of 5
5. Question
Consider the following statements
- “Repo” means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
- Recently the repo rate fell below 6% for the first time since 2010.
Which of the above statements is/are correct?
Correct
Solution: c)
Repurchase Options or in short Repo, is a money market instrument, which enables collateralised short-term borrowing and lending through sale/purchase operations in debt instruments. This is an instrument used by the Central Bank and banking institutions to manage their daily / short term liquidity.
“Repo” means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
RBI had decided to cut the repo rate in the policy by 25 basis points to 5.75%. The repo rate fell below 6% for the first time since 2010.
Incorrect
Solution: c)
Repurchase Options or in short Repo, is a money market instrument, which enables collateralised short-term borrowing and lending through sale/purchase operations in debt instruments. This is an instrument used by the Central Bank and banking institutions to manage their daily / short term liquidity.
“Repo” means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
RBI had decided to cut the repo rate in the policy by 25 basis points to 5.75%. The repo rate fell below 6% for the first time since 2010.
