QUIZ – 2020: Insights Current Affairs Quiz, 4 March 2021

Solution: a)

While counter-cyclical fiscal policy is necessary to smooth out economic cycles, it becomes

critical during an economic crisis.

Relevance of Counter-cyclical Fiscal Policy:

Indian Kings used to build palaces during famines and droughts to provide employment and improve the economic fortunes of the private sector. Economic theory, in effect, makes the same recommendation: in a recessionary year, Government must spend more than during expansionary times. Such counter-cyclical fiscal policy stabilizes the business cycle by being contractionary (reduce spending/increase taxes) in good times and expansionary (increase spending/reduce taxes) in bad times. On the other hand, a pro-cyclical fiscal policy is the one wherein fiscal policy reinforces the business cycle by being expansionary during good times and contractionary during recessions.

Source: Economic Survey 2020-21 Vol-1

Solution: d)

In simple words, fiscal prudence is Spending within budget.

For any economy to mature, fiscal prudence is critical. If the government continues to spend way more than its revenues, it will either have to print more currency or borrow from the market to meet the shortfall. Printing currency will fuel inflation and, at times, hyper-inflation.

In a bid to avoid these scenarios and mandate fiscal prudence, the Government of India passed the Fiscal Responsibility and Budget Management (FRBM) Act in 2003. Its objective was to institutionalise fiscal prudence and reduce the country’s fiscal deficit in such a manner that it gradually moves towards balancing the Budget.

Solution: a)

In India, revenue deficit is one of the major reasons for a large fiscal deficit. This means that the government cannot finance its revenue operations by the resources it generates.

Undertake developmental expenditure: This is done because the internal resources of the government are not adequate to undertake development expenditure. It must borrow money from the market.

CAD is financed by external flows. If government borrows from outside it would increase our external capital deficit, but not affect the short-term CAD.

Solution: c)

Seed dispersal is the movement, spread or transport of seeds away from the parent plant.

Plants have very limited mobility and consequently rely upon a variety of dispersal vectors to transport their propagules, including both abiotic vectors such as the wind and living (biotic) vectors like birds.

There are five main modes of seed dispersal: gravity, wind, ballistic, water, and by animals.

Solution: c)

How does a relaxation of the FRBM work?

The law does contain what is commonly referred to as an ‘escape clause’. Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include national security, war, national calamity, collapse of agriculture, structural reforms and decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.