Q61. Which constitutional fund is primarily utilized to meet the expenditures of the Government of India, and requires parliamentary approval for withdrawal?
Monetary and Fiscal Policy, Union Budget and Resource Mobilisation: RAS Prelims MCQs
86 RAS Prelims MCQs on monetary and fiscal policy, the Union Budget and resource mobilisation test the tools of the RBI, the Monetary Policy Committee and inflation targeting, along with the deficits, taxes and budget terms. Each question asks for the effect of a policy change on liquidity or credit, so the explanations trace the transmission step by step.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
Showing 61–70 of 86 questions
Q62. Which of the following statements accurately characterizes direct taxes in India?
Explanation
These taxes are levied directly on the income or wealth of individuals and corporations. The person or entity that earns the income is legally responsible for paying the tax to the government. Because the burden cannot be passed on to someone else, these taxes are effective for progressive redistribution and are a major source of revenue for the central government.
Q63. Match the taxes in List I with their characteristic features in List II.
| Tax | Characteristic |
|---|---|
| A. Personal Income Tax | i. Indirect tax levied on imports and exports |
| B. Goods and Services Tax | ii. Direct tax levied on the net income of companies |
| C. Corporate Tax | iii. Progressive direct tax on individuals |
| D. Customs Duty | iv. Destination-based indirect tax on consumption |
Explanation
Personal income tax is progressive, meaning higher earners pay more, while corporate tax applies to company profits. The goods and services tax is an indirect levy collected at the point of consumption based on where goods are delivered. Customs duties are specific taxes applied to international trade. These various instruments allow the government to collect revenue from different economic activities across the country.
Q64. A significant cut in the corporate tax rate by the Union Government is most likely aimed at achieving which of the following effects?
Explanation
Reducing the tax burden on companies leaves them with more retained earnings to reinvest in their operations. This policy is intended to make the domestic market more competitive, attract foreign direct investment, and encourage industrial expansion. By lowering the cost of doing business, the government hopes to create jobs, increase production capacity, and stimulate long-term development across the national economy.
Q65. Identify the odd one out among the following taxes levied by the Government of India.
Explanation
Direct taxes, such as income tax, corporate tax, and minimum alternate tax, are levied directly on the earnings of individuals or businesses. They cannot be shifted to others. Excise duty, however, is an indirect tax applied to the manufacture of goods within the country. The burden of this tax is typically passed on to the final consumer through higher retail prices.
Q66. Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R).
Assertion (A): Direct taxes like Income Tax are generally designed to be progressive in nature.
Reason (R): Progressive taxation helps in reducing income inequalities by taxing higher-income groups at higher rates.
Assertion (A): Direct taxes like Income Tax are generally designed to be progressive in nature.
Reason (R): Progressive taxation helps in reducing income inequalities by taxing higher-income groups at higher rates.
Explanation
Progressive taxation systems apply higher tax rates as the income level of the taxpayer increases. This design ensures that those with a greater ability to pay contribute a larger share of their earnings to the public treasury. By doing so, the government can generate revenue while simultaneously addressing wealth gaps, promoting social equity, and funding welfare programs for less-privileged sections.
Q67. Which of the following statements regarding the trends in India’s tax system is incorrect?
Explanation
While the tax system has evolved with the introduction of the goods and services tax to widen the base, direct taxes remain vital. Corporate and personal income taxes are significant contributors to the government’s revenue. Claims that personal income tax contributes nothing are factually incorrect, as it forms a substantial and growing portion of the total tax revenue collected annually.
Q68. Arrange the following landmark tax reforms in India in chronological order of their introduction:
I. Introduction of Goods and Services Tax (GST)
II. Introduction of Value Added Tax (VAT) at the State level
III. Introduction of Service Tax
IV. Enactment of the Income Tax Act currently in force
I. Introduction of Goods and Services Tax (GST)
II. Introduction of Value Added Tax (VAT) at the State level
III. Introduction of Service Tax
IV. Enactment of the Income Tax Act currently in force
Explanation
The current framework of income tax was established decades ago, followed by the introduction of service tax in the 1990s to cover the growing service sector. State-level value added tax was implemented in the mid-2000s to modernize indirect taxation. Finally, the goods and services tax was launched in 2017 to create a unified national market and simplify multiple taxes.
Q69. Indirect taxes are fundamentally defined by which of the following characteristics?
Explanation
These taxes are levied on the production, sale, or consumption of goods and services rather than on income. The initial tax is paid by manufacturers or retailers, who then recover the amount by including it in the final price of the product. Consequently, the ultimate economic impact is felt by the end-user, making it a consumption-based revenue collection method.
Q70. Consider the following statements regarding the structure of the Goods and Services Tax (GST):
I. It is a dual model comprising CGST and SGST on intra-state supplies.
II. IGST is levied on inter-state supplies and collected entirely by the State Governments.
III. GST is a destination-based consumption tax.
Which of the above statements are correct?
I. It is a dual model comprising CGST and SGST on intra-state supplies.
II. IGST is levied on inter-state supplies and collected entirely by the State Governments.
III. GST is a destination-based consumption tax.
Which of the above statements are correct?
Explanation
The system utilizes a dual model where both central and state governments levy taxes on transactions within a state. It is a destination-based tax, meaning revenue flows to the location of consumption. However, the integrated tax on inter-state trade is collected by the central government and then shared with the states, rather than being collected entirely by state authorities.Answer key for these questions
| Q | Correct answer |
|---|---|
| 61 | (a) Consolidated Fund of India |
| 62 | (b) The incidence and impact of the tax fall on the same entity and cannot be shifted |
| 63 | (a) A-iii, B-iv, C-ii, D-i |
| 64 | (a) Boosting private investment and economic growth |
| 65 | (c) Excise Duty |
| 66 | (a) Both A and R are true and R is the correct explanation of A. |
| 67 | (c) Personal Income Tax contributes nothing to the central tax pool due to high exemptions |
| 68 | (a) IV - III - II - I |
| 69 | (d) Tax burden can be shifted to the consumer |
| 70 | (b) I and III only |
Key facts from Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
- The objective of monetary policy under the RBI Act, 1934 is to maintain price stability while supporting growth.
- If the RBI increases the CRR, the lendable resources of commercial banks decrease.
- A higher reverse repo rate encourages banks to park funds with the RBI, reducing liquidity.
- The statutory framework for the Monetary Policy Committee was introduced by amending the Reserve Bank of India Act, 1934.
- Inflation targeting means keeping retail inflation within a statutory target range.
- When the RBI buys government securities from the market, the total money supply increases.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Monetary and Fiscal Policy, Union Budget and Resource Mobilisation?
This page has 86 practice MCQs on Monetary and Fiscal Policy, Union Budget and Resource Mobilisation (Indian Economy). Each has the correct answer, and most have an explanation.
What happens when the RBI raises the CRR?
Banks must keep a larger share of their deposits with the RBI, so their lendable resources decrease. Credit becomes tighter, and the policy is used to control inflation.
What is inflation targeting?
A monetary policy framework in which the central bank aims to keep inflation within a stated range. In India the RBI works to a statutory target for retail (CPI) inflation, and the Monetary Policy Committee decides the policy rate.
What is the effect of the RBI buying government securities?
It pays the sellers with new money, so the total money supply in the economy increases. This is an open market operation, used to add liquidity, and selling securities does the opposite and absorbs liquidity from the banks.