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Fiscal Policy

Asked 6 times in UPSC Prelims · first asked 1996 · last asked 2021

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Which among the following steps is most likely to be taken at the time of an economic recession?

2021Economy
ACut in tax rates accompanied by increase in interest rate
BIncrease in expenditure on public projects
CIncrease in tax rates accompanied by reduction of interest rate
DReduction of expenditure on public projects

Explanation

During an economic recession, governments often increase expenditure on public projects to stimulate economic activity and create jobs. This increase in government spending helps boost demand in the economy and can lead to a multiplier effect, where the initial increase in spending generates further economic activity.

What was the purpose of the Inter-Creditor Agreement signed by Indian banks and financial institutions recently?

2019Economy
ATo lessen the Government of India's perennial burden of fiscal deficit and current account deficit
BTo support the infrastructure projects of Central and State Governments
CTo act as independent regulator in case of applications for loans of Rs 50 crore or more
DTo aim at faster resolution of stressed assets of Rs 50 crore or more which are under consortium lending.

Explanation

The Inter-Creditor Agreement was signed by Indian banks and financial institutions to facilitate the quicker resolution of stressed assets worth Rs 50 crore or more that are under consortium lending. This agreement is part of Project Sashakt initiated by the Finance Ministry to address the issue of Non-Performing Assets (NPAs) in Public Sector Banks in a time-bound manner. This particular approach focuses on dealing with mid-sized bad loans ranging from 50 to 500 crore through the Inter-Creditor Pact.

Which one of the following statements appropriately describes the 'fiscal stimulus'?

2011Economy
AIt is a massive investment by the government in manufacturing sector to ensure the supply of goods to meet the demand surge caused by rapid economic growth
BIt is an intense affirmative action of the government to boost economic activity in the country
CIt is government's intensive action on financial institutions to ensure disbursement of loans to agriculture and allied sectors to promote greater food production and contain food inflation
DIt is an extreme affirmative action by the government to pursue its policy of financial inclusion

Explanation

Governments utilize fiscal policy to impact the overall demand in the economy. This is done to reach economic goals like maintaining stable prices, achieving full employment, and fostering economic growth.

Consider the following actions by the Government: 1. Cutting the tax rates 2. Increasing the government spending 3. Abolishing the subsidies in the context of economic recession. Which of the above actions can be considered a part of the 'fiscal stimulus' package?

2010Economy
A1 and 2 only
B2 only
C1 and 3 only
D1, 2 and 3

Explanation

Abolishing subsidies will cause prices of subsidized goods and services to increase. Lowering tax rates can serve as a stimulus.

In the context of governance, consider the following: 1. Encouraging Foreign Direct Investment inflows 2. Privatization of higher educational Institutions 3. Down-sizing of bureaucracy 4. Selling/offloading the shares of Public Sector Undertakings. Which of the above can be used as measures to control the fiscal deficit in India?

2010Economy
A1, 2 and 3
B2, 3 and 4
C1, 2 and 4
D3 and 4 only

Explanation

In the context of governance, measures like encouraging Foreign Direct Investment inflows, privatizing higher educational institutions, downsizing bureaucracy, and selling or offloading shares of Public Sector Undertakings can be utilized to control the fiscal deficit in India. The correct options are (d) 3 and 4 only. The idea of reducing the size of the bureaucracy was first considered in the early 1990s, and selling off shares of Public Sector Undertakings is another method to manage the fiscal deficit.

A redistribution of income in a country can be best brought about through:

1996Economy
Aprogressive taxation combined with progressive expenditure
Bprogressive taxation combined with regressive expenditure
Cregressive taxation combined with regressive, expenditure
Dregressive taxation combined with progressive expenditure

Explanation

To achieve a redistribution of income in a country, the most effective approach is to combine progressive taxation, where the tax rate increases as income rises, with regressive expenditure. In this context, regressive expenditure refers to government spending decreasing as individuals' income increases, with a focus on directing more resources towards the poorer sections of society rather than the wealthy.