Taxation as a Tool

Q.

Describe the Great Depression of 1929.

Q.

Which of the following is an example of discretionary fiscal policy?

1. An increase in unemployment benefit payments during a recession due to rising unemployment

2. The tax increases to combat rising inflation

3. A decrease in income tax receipts during a recession because incomes are falling

4. An increase in income tax receipts during an expansion because incomes are rising

Q.

To help fight a recession, the government could:

1. conduct contractionary fiscal policy by raising taxes.

2. decrease taxes to increase aggregate demand.

3. lower interest rates by decreasing the cash rate.

4. decrease government spending to balance the budget

Q.

If the economy is in an inflationary period, what action would Fiscal Policy most likely take?

1. Decrease taxes

2. Decrease the discount rate

3. Increase taxes

4. Increase spending

Q.

Which of the following best describes counter-cyclical fiscal policy?

1. The use of active fiscal policy to counter economic downturns and restore the economy to more normal levels of demand.

2. The increases in GDP resultant from rising business and consumer confidence

3. The deployment of active monetary policy to reduce high levels of inflation in the economy.

4. The contraction of government spending to reduce budget deficits and reduce the national debt.

Q.

If the economy were in a recession, we would expect:

1. government expenditure to be high and tax revenues to be high, probably leading to a budget deficit

2. government expenditure to be low and tax revenues to be low, probably leading to a budget surplus.

3. government expenditure to be high and tax revenues to be low, probably leading to a budget surplus.

4. government expenditure to be high and tax revenues to be low, probably leading to a budget deficit.

Q.

If inflation is higher in country A than in Country B, and the exchange rate between the two countries is fixed, what is likely to happen to the trade balance between the two countries?

Q. The value of the balanced budget multiplier is .

1. \N
2. 1
3. >1
4. <1

Q.

Suppose it takes 1.25 yen to buy a rupee, and the price level in Japan is 3 and the price level in India is 1.2. Calculate the real exchange rate between India and Japan (the price of Japanese goods in terms of Indian goods). (Hint: First find out the nominal exchange rate as a price of yen in rupees).

Q.

An increase in government expenditure is likely to have a greater impact on national output than a reduction in taxes. Which of the following could be reasons for this?

1. Consumers respond to a fall in the tax rates by saving a part of the increase in their disposable income

2. Employees increase work hours in response to lower taxes

3. A reduction in net taxes is likely to lead to higher interest rates

4. The increase in government spending leads to a lower fiscal deficit

Q.

A cut in direct taxes on households’ income:

1. Has no effect

2. Shifts the aggregate demand curve to the left

3. Shifts the aggregate demand curve to the right

4. Moves the economy along the aggregate demand curve

Q.

Government has raised its expenditure on free sevices like education and health to the poor. Explain the economic value it reflects.

Q. Identify the correct statement .

1. In socialist economy, the economic problems are solved by price mechanism.
2. Study about level of unemployment in the country is a part of normative economics.
3. Mixed economy has dual system of pricing.
4. Production Possibilities curve is concave due to diminishing opportunity cost.

Q.

Discuss any 3 points in favour of privatization.

Q.

A persistent recession leads to low revenue receipts of the government. Comment.

Q.

The balanced budget multiplier:

1. is less than one.

2. can be greater than one.

3. is one.

4. is zero.

Q.

Briefly describe how the government budget contributes to the process of growth and stability.

Q.

Are fiscal deficits inflationary?

Q.

Why should revenue deficit be curbed?

Q. Explain 'Banker to the Government' function of the central bank.

Q.

Critically appraise the fiscal reforms initiated under NEP of 1991.

Q.

What is the impact of surplus budget on AD?

Q.

Suppose in a simple economy with no foreign sector, the MPC is equal to 0.8. If the government increased government spending by $30million,anditsimultaneouslyraisedtaxesby$30 million, how much will be the change in output (∆Y)?

1. Output will increase by $30 million

2. There will be no change in output

3. Output will decrease by $30 million

4. Output will increase by $15 million

Q.

If the tax rate is 0.5 and the MPC is 0.4, what is the government spending multiplier?

1. 1.25

2. 2

3. 0

4. 1

Q. "Fiscal deficit is necessarily inflationary in nature''. Do you agree? Support your answer with valid reasons.

Q.

Which of these is a side effect of deflation?

1. Increase in demand

2. Economic depression

3. Increase in personal expenditure.

4. Decreasing unemployment

Q.

What is an example of a regressive tax?

Q.

Suppose in a simple economy with no foreign sector, the MPC is equal to 0.9. How much of a lump sum tax (∆T) would have to be given up to raise output by 100 million?

1. 11.1 million

2. 100 million

3. 33.3 million

4. 10 million

Q. Income Tax is an example of ____________.

1. Neither (a) nor (b)
2. direct tax
3. Both (a) and (b)
4. indirect tax

Q. Income Tax is a tax on ______________.

1. wealth or assets owned by an individual or an entity
2. specified gifts and donations
3. income of an individual or an entity
4. total property passing to the heirs on the death of a person.