[Mission 2023] STATIC QUIZ, 6 June 2023 – Economy

Solution: a)

Only Statement 1 is correct.

The SDR was created by the IMF in 1969 as a supplementary international reserve asset, in the context of the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase its domestic currency in foreign exchange markets, as required to maintain its exchange rate.

The value of the SDR is based on a basket of five major currencies—the US dollar, the euro, the Chinese renminbi (RMB), the Japanese yen, and the British pound sterling. No gold backing is needed.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.

Solution: d)

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.

Solution: c)

Taxation is based on the idea of Fairness. Though fairness (i.e., the first criteria of a good tax system) is not always easy to define, economists suggested inclusion of two elements in the tax system to make it fair namely, horizontal equity and vertical equity.

Individuals in identical or similar situations paying identical or similar taxes is known as horizontal equity. When ‘better off people pay more taxes it is known as vertical equity.

Solution: d)

Tax buoyancy is an indicator to measure efficiency and responsiveness of revenue mobilization in response to growth in the Gross domestic product or National income.

A tax is said to be buoyant if the tax revenues increase more than proportionately in response to a rise in national income or output.

A tax is buoyant when revenues increase by more than, say, 1 per cent for a 1 per cent increase in GDP.

Solution: b)

STRUCTURAL CHANGE represents the fundamental CHANGES that occurring in the basic features of the ECONOMY over a long period. STRUCTURE of the ECONOMY MEANS the occupational STRUCTURE, sectoral distribution of income, industrial pattern, composition of exports, saving- GDP ratio etc.

Due to LPG reforms, largely agriculture-based economy has transformed into service-based economy in subsequent years or decades.