UPSC Static Quiz – Environment : 11 June 2024

Solution: d)

• National income of a country means the sum total of incomes earned by the citizens of that country during a given period, over a year.
• National income accounting refers to the set of methods and principles that are used by the government for measuring production and income, or in other words economic activity of a country in a given time period.
• The various measures of determining national income are GDP (Gross Domestic Product), GNP (Gross National Product), and NNP (Net National Product) along with other measures such as personal income and disposable income.
• It should be noted that national income is not the sum of all incomes earned by all citizens, but only those incomes which accrue due to participation in the production process.
• Individuals participate in the production process by supplying factors of production which they possess.
• According to Marshall: “The labour and capital of a country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial including services of all kinds. This is the true net annual income or revenue of the country or national dividend.” In this definition, the word ‘net’ refers to deductions from the gross national income in respect of depreciation and wearing out of machines. And to this, must be added income from abroad.

National income accounting equation is an equation that shows the relationship between income and expense of an economy and other categories. It is represented by the following equation:

Y = C + I + G + (X – M)

Where

Y = National income

C = Personal consumption expenditure

I = Private investment

G = Government spending

X = Net exports

M = Imports

Solution: c)

M1 is the money supply that is composed of currency, demand deposits, other liquid deposits—which includes savings deposits. M1 includes the most liquid portions of the money supply because it contains currency and assets that either are or can be quickly converted to cash.

Solution: c)

Excise duty and VAT on fuel constitute an important source of revenue for both the Centre and the states. Petroleum taxes with states are shared out of basic excise duty. The Centre also levies additional excise duty and cesses on petroleum products.

Solution: b)

Statements 1, 3 and 4 are correct.

Fiscal Reforms and Budget Management Act (FRBMA):

The FRBM Bill, 2000 was passed by the Parliament in 2003. It was considered as a watershed in the area of fiscal reforms in the country.

As per the provision of FRBMA, 2003, the GoI to lay following three

statements before the Parliament along with the Budget and Demands for Grants in each financial year:

(a) Fiscal Policy Strategy Statement (FPSS);

(b) Medium Term Fiscal Policy Statement (MTFPS);

(c) Macroeconomic Framework Statement (MFS).

Solution: d)

Composition of Fiscal Deficit

Out of the two broad expenditure obligations of a government—revenue expenditure and capital expenditure—the following combinations of expenditure composition are suggested:

A fiscal deficit with a surplus revenue budget or a zero-revenue expenditure is the best composition of fiscal deficit and the most suitable time for deficit financing.

The deficit requirements for lower revenue expenditures and higher capital expenditures are the next best situation for deficit financing, provided revenue deficit is eliminated soon.

The last could be the situation when major part of deficit financing is to fulfil revenue expenditures and a minor part to go for capital expenditures. The total money of the deficit might go to fulfil revenue expenditure, which could be the worst form of it.

Crowding out effect: –

as per Economic survey in a developing country like India: –

Concerns about high government borrowings crowding out the private sector’s fund-raising efforts were misplaced and not based on evidence,

“It’s a very tempting argument to make but the data does not support it,”

On the contrary, the government’s increased capital spending would impart a ‘crowding-in effect’ spurring more investment.