INSIGHTS STATIC QUIZ 2020 - 21
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Question 1 of 5
1. Question
Consider the following statements.
- While Gross Domestic Product includes the production of goods and services within a country by all producers, Gross National Product captures all goods and services that is produced by the citizens of a country.
- Usually Gross National Product tends to be less, if an economy is highly globalised and competitive and many of its MNCs are operating in other countries.
Which of the above statements is/are correct?
Correct
Solution: a)
Gross Domestic Product (GDP) includes the production within a country by all producers i.e. citizens as well as foreign multi national corporations.
Gross National Product (GNP) captures all that is produced by the citizens of the country, whether it is within the geography of the country or abroad.
GNP is GDP + net factor income from abroad.
In the age of globalisation, one country’s GDP is another country’s GNP.
If it’s a highly globalised and competitive economy and many of its MNCs are operating in other countries, its GNP tends to be more.
Incorrect
Solution: a)
Gross Domestic Product (GDP) includes the production within a country by all producers i.e. citizens as well as foreign multi national corporations.
Gross National Product (GNP) captures all that is produced by the citizens of the country, whether it is within the geography of the country or abroad.
GNP is GDP + net factor income from abroad.
In the age of globalisation, one country’s GDP is another country’s GNP.
If it’s a highly globalised and competitive economy and many of its MNCs are operating in other countries, its GNP tends to be more.
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Question 2 of 5
2. Question
Tax buoyancy refers to the responsiveness of tax revenue growth to changes in GDP. If there is an output growth and the tax buoyancy is not commensurate, then it can imply
Correct
Solution: c)
Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP. It refers to the responsiveness of tax revenue growth to changes in GDP. When a tax is buoyant, its revenue increases without increasing the tax rate.
If the output grows and the tax buoyancy is not commensurate it means one of the following or both: There is tax evasion or growth in the non-taxed part of GDP (Eg: agriculture)
Incorrect
Solution: c)
Tax buoyancy explains this relationship between the changes in government’s tax revenue growth and the changes in GDP. It refers to the responsiveness of tax revenue growth to changes in GDP. When a tax is buoyant, its revenue increases without increasing the tax rate.
If the output grows and the tax buoyancy is not commensurate it means one of the following or both: There is tax evasion or growth in the non-taxed part of GDP (Eg: agriculture)
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Question 3 of 5
3. Question
Income tax in India is
Correct
Solution: b)
The income-tax is levied and collected by the Centre but its proceeds are distributed between the Centre and the states.
Incorrect
Solution: b)
The income-tax is levied and collected by the Centre but its proceeds are distributed between the Centre and the states.
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Question 4 of 5
4. Question
External Aids is the best means to finance a government’s fiscal deficit because
- It brings in foreign currency that is also useful to bridge the Balance of payments (BoP) apart from its utility in developmental expenditures.
- It does not cause crowding out effect in the domestic market and is favourable to the domestic borrowers.
Which of the above statements is/are correct?
Correct
Solution: c)
If external aid is a grant or coming without interest, no better way to finance the deficit, if we ignore their inflationary effects.
When the domestic market has limited amount of funds, and if the government desires to borrow a large share of it to finance the fiscal deficit, it tends to raise the demand for funds in the market. This shoots the market interest rate for the funds and causes problems to the domestic investors who now have to pay a higher interest rate to avail the same loan.
If the same money is borrowed from abroad, the crowing out effect doesn’t occur.
Incorrect
Solution: c)
If external aid is a grant or coming without interest, no better way to finance the deficit, if we ignore their inflationary effects.
When the domestic market has limited amount of funds, and if the government desires to borrow a large share of it to finance the fiscal deficit, it tends to raise the demand for funds in the market. This shoots the market interest rate for the funds and causes problems to the domestic investors who now have to pay a higher interest rate to avail the same loan.
If the same money is borrowed from abroad, the crowing out effect doesn’t occur.
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Question 5 of 5
5. Question
Match the following pairs
Term Definitions
- Deflation A. Reduction in the rate of inflation
- Disinflation B. General fall in the level of prices
- Stagflation C. Combination of inflation and rising unemployment due to recession
- Reflation D. Attempt to raise the prices to counteract the deflationary prices.
Select the correct answer code:
Correct
Solution: b)
Incorrect
Solution: b)
