INSIGHT UPSC QUIZ

GS Economy Monetary and Fiscal Policy
Q.

In context of the relationship between ‘interest rates and demand for money’, consider the following statements:

1. The purchasing power of money increases with the rising price level.

2. When interest rate goes up, people become less interested in holding money.

3. At higher interest rate, the demand for money comes down. 

Which of the statements given above are correct?

Explanation:

ANSWER: (B)

  • Statement 1 is not correct.

A rising price level may erode the purchasing power of money. 

  • Both Statements 2 and 3 are correct.

When interest rates go up, people become less interested in holding money since holding money amounts to holding less of interest-earning deposits, and thus less interest received. Therefore, at higher interest rates, money demand comes down. 

Q.

Which among the following are the examples of ‘indirect taxes’? 

1. Wealth tax 

2. Excise taxes 

3. Corporation tax

4. Customs duties 

5. Service tax 

Select the correct answer using the code given below.

Explanation:

ANSWER: (D)

  • Tax revenues, an important component of revenue receipts, have for long been divided into direct taxes (personal income tax) and firms (corporation tax), and indirect taxes like excise taxes (duties levied on goods produced within the country), customs duties (taxes imposed on goods imported into and exported out of India) and service tax. 
  • Other direct taxes like wealth tax, gift tax and estate duty (now abolished) have never brought in large amount of revenue and thus have been referred to as ‘paper taxes’.

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