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With reference to India's present economic condition, consider the following statements:
1. India’s current account deficit to GDP ratio has started to increase lately.
2. The external indebtedness continues to be on an increasing path for the last five years.
Which of the statements given above is/are correct?
Statement 1 is correct. The current account deficit to GDP ratio has started to increase lately.India’s current account deficit for the FY’19 widened to 2.1 per cent of GDP, the highest in six years on account of a higher trade deficit caused by high crude oil imports.
Statement 2 is incorrect.The external indebtedness continues to be on a declining path. India’s foreign exchange reserves continue to be comfortably placed in excess of US$400 billion. The Indian Rupee traded in the range of 65-68 per US$ in 2017-18 but depreciated to a range of 70-74 in 2018-19.
Statement 1 is correct. The current account deficit to GDP ratio has started to increase lately.India’s current account deficit for the FY’19 widened to 2.1 per cent of GDP, the highest in six years on account of a higher trade deficit caused by high crude oil imports.
Statement 2 is incorrect.The external indebtedness continues to be on a declining path. India’s foreign exchange reserves continue to be comfortably placed in excess of US$400 billion. The Indian Rupee traded in the range of 65-68 per US$ in 2017-18 but depreciated to a range of 70-74 in 2018-19.
Deficit financing leads to inflation in general, but it can be checked if
Deficit financing is the budgetary situation where expenditure is higher than the revenue. It is a practice adopted for financing the excess expenditure with outside resources. The expenditure revenue gap is financed by either printing of currency or through borrowing.
The primary reason for price rise in the situations of deficit financing is that governments fail to equalize the total demand of the economy by the total supply. Hence, the correct answer is (d).
Deficit financing is the budgetary situation where expenditure is higher than the revenue. It is a practice adopted for financing the excess expenditure with outside resources. The expenditure revenue gap is financed by either printing of currency or through borrowing.
The primary reason for price rise in the situations of deficit financing is that governments fail to equalize the total demand of the economy by the total supply. Hence, the correct answer is (d).
A decrease in tax to GDP ratio of a country may indicate which of the following?
1. A slowing economic growth rate.
2. Inefficient tax administration and tax evasion.
Select the correct answer using the code given below:
The ratio of tax collection against the Gross Domestic Product (GDP) is the tax to GDP ratio. This ratio is the total government tax collections divided by the country’s GDP. Countries usually measure economic growth in terms of GDP, which is the total value of goods and services produced in an economy during a specific period of time. Impacts of better tax to GDP ratio are as follows:
1. It is a key barometer that indicates the ability of the government to invest in various development initiatives.
2. Recapitalization of public sector banks (PSBs).
3. Investment in infrastructures, such as affordable housing, roads, railways, ports and airports, would improve the ease of doing business, and have a multiplier effect on economic growth.
4. The enhanced tax revenues would also reduce the dependence on disinvestment and dividends from public sector firms, to keep the fiscal deficit in check.
5. The inefficient tax administration and tax evasion lead to low tax collection thus tax to GDP ratio decreses. Hence, statement 2 is correct.
6. An economic slowdown occurs when the rate of economic growth slows in an economy. Hence, statement 1 is correct.
The ratio of tax collection against the Gross Domestic Product (GDP) is the tax to GDP ratio. This ratio is the total government tax collections divided by the country’s GDP. Countries usually measure economic growth in terms of GDP, which is the total value of goods and services produced in an economy during a specific period of time. Impacts of better tax to GDP ratio are as follows:
1. It is a key barometer that indicates the ability of the government to invest in various development initiatives.
2. Recapitalization of public sector banks (PSBs).
3. Investment in infrastructures, such as affordable housing, roads, railways, ports and airports, would improve the ease of doing business, and have a multiplier effect on economic growth.
4. The enhanced tax revenues would also reduce the dependence on disinvestment and dividends from public sector firms, to keep the fiscal deficit in check.
5. The inefficient tax administration and tax evasion lead to low tax collection thus tax to GDP ratio decreses. Hence, statement 2 is correct.
6. An economic slowdown occurs when the rate of economic growth slows in an economy. Hence, statement 1 is correct.
Which one of the following is often termed as 'Revenue Forgone'?
Tax expenditure is known as revenue forgone.Tax expenditures are revenue losses attributable to tax provisions that often result from the use of the tax system to promote social goals without incurring direct expenditures. The Tax Expenditure corresponds to relaxations given when tax burden becomes difficult for the sustainability of a particular sector. Tax exemptions or incentives are given in the form of lower rates of tax relative to normal rates.
The estimates and projections in the Statement of Revenue Forgone indicate the potential revenue gain that would be realized by removing exemptions, deductions and such similar measures.
Tax expenditure is known as revenue forgone.Tax expenditures are revenue losses attributable to tax provisions that often result from the use of the tax system to promote social goals without incurring direct expenditures. The Tax Expenditure corresponds to relaxations given when tax burden becomes difficult for the sustainability of a particular sector. Tax exemptions or incentives are given in the form of lower rates of tax relative to normal rates.
The estimates and projections in the Statement of Revenue Forgone indicate the potential revenue gain that would be realized by removing exemptions, deductions and such similar measures.
Consider the following conditions in an economy:
Which of the above may cause inflation in an economy?
• Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
• In a growing economy, consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices. Hence, statement 1 is correct.
• Statement 2 is correct. A low unemployment rate is unquestionably good in general, but it can cause inflation because more people have more disposable income.
• Expansionary fiscal policy by governments can increase the amount of discretionary income for both businesses and consumers; thus, prices go up.Hence, statement 3 is correct.
• Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.
• In a growing economy, consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices. Hence, statement 1 is correct.
• Statement 2 is correct. A low unemployment rate is unquestionably good in general, but it can cause inflation because more people have more disposable income.
• Expansionary fiscal policy by governments can increase the amount of discretionary income for both businesses and consumers; thus, prices go up.Hence, statement 3 is correct.