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 71–80 of 86 questions
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q71. Read the following statements and select the correct option. Statement I: The implementation of GST has largely eliminated the cascading effect of taxes in India. Statement II: GST allows for seamless availability of Input Tax Credit (ITC) across the value chain.
Explanation
By allowing businesses to claim credit for the taxes paid on inputs, the system ensures that tax is only levied on the value added at each stage. This mechanism prevents the problem of "tax on tax," known as cascading. The seamless flow of credits across the entire supply chain makes the taxation process more transparent, efficient, and cost-effective for businesses.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q72. A manufacturer in Rajasthan sells goods to a dealer in Gujarat. Under the destination-based principle of GST, which entity receives the tax revenue on the final consumption?
Explanation
In an inter-state transaction, an integrated tax is applied, which is collected by the central authority. Because the tax is destination-based, the portion of the revenue that would normally go to a state is allocated to the state where the goods are consumed. Therefore, the benefits are split between the central government and the government of the consuming state.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q73. Consider the following taxes: I. Central Excise Duty II. State Value Added Tax (VAT) III. Custom Duty (Basic) IV. Entry Tax / Octroi Which of the above taxes were subsumed under the Goods and Services Tax (GST)?
Explanation
Several central and state-level indirect taxes were replaced by the unified system to simplify the tax structure. These included central excise duties, state value-added taxes, and local levies like octroi and entry tax. However, basic customs duties on international imports were not merged into this system and continue to be levied separately by the central government on foreign trade.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q74. Which of the following items is currently kept OUTSIDE the purview of the Goods and Services Tax (GST) in India?
Explanation
While most goods and services are covered under the new tax regime, certain high-revenue products have been temporarily excluded. These include specific fuels like petrol, diesel, and aviation turbine fuel. Currently, these items remain subject to state-level taxes and central excise duties. Bringing them under the unified tax system would require a consensus among all members of the council.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q75. Consider the following methods of resource mobilization by the government: I. Expanding the base of direct taxes. II. Rationalizing subsidies to save expenditure. III. Monetizing public assets. IV. Increasing non-tax revenues like spectrum auctions. V. Borrowing heavily from external commercial markets at high interest. Which of the above are considered healthy and sustainable methods of resource mobilization?
Explanation
Sustainable ways to increase government funds include expanding the tax net, making spending more efficient through subsidy reform, and utilizing public assets effectively. These methods generate revenue without creating long-term debt burdens. While borrowing is sometimes necessary, relying on high-interest external loans is generally seen as unsustainable and risky for the long-term financial health and stability of the economy.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q76. Which of the following statements about government borrowing as a tool for resource mobilization is correct?
Explanation
Borrowing allows the government to fund its current expenditures and investment projects when revenues fall short. While this provides immediate cash flow for development, it also creates an obligation to repay the principal and interest in the future. This debt must be carefully managed to ensure it does not lead to a fiscal crisis or unfairly burden future generations.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q77. Match the specific resource mobilization receipts in List I with their budget category in List II. List I: (Receipt) A. Issuance of Sovereign Gold Bonds B. 5G Spectrum Auction receipts C. Income Tax revenues D. Disinvestment of Air India List II: (Budget Category) i. Tax Revenue Receipt ii. Non-Tax Revenue Receipt iii. Debt Capital Receipt iv. Non-Debt Capital Receipt
Explanation
Issuing bonds represents borrowing, which is a debt-creating capital receipt. Revenue from spectrum auctions is a non-tax income source, while income tax is a standard tax revenue. Disinvestment of a public company involves selling an asset, which is categorized as a non-debt capital receipt. These various types of receipts show how the government manages its finances through income and borrowing.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q78. What is a likely macroeconomic effect if a developing country suffers from a persistently low tax base?
Explanation
When a government cannot collect sufficient revenue from its citizens and businesses, it faces a persistent gap between its spending needs and available funds. To bridge this shortfall, the state must borrow from domestic or international markets. This reliance on debt leads to higher interest payments, larger fiscal deficits, and limited resources for essential public investments in health and education.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q79. The Laffer Curve conceptually relates to resource mobilization by illustrating the relationship between:
Explanation
This economic concept suggests that there is an optimal tax rate that maximizes total revenue. At very low rates, increasing the tax rate raises revenue. However, if rates become too high, they can discourage work, investment, and compliance, leading to a decrease in total collections. Understanding this trade-off helps policymakers design tax systems that balance revenue needs with economic incentives.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q80. In the context of government finance, ‘Disinvestment’ refers to:
Explanation
This process involves the government selling its shares in companies that it owns or controls. By reducing its ownership, the state can raise funds for various development projects or to reduce the fiscal deficit. Disinvestment can range from selling a small portion of shares to the public to a complete transfer of ownership and management to private investors or other entities.
Answer key for these questions
Q
Correct answer
71
(a) Both Statement I and Statement II are correct
72
(c) Central and Gujarat governments share the revenue
73
(b) I, II and IV only
74
(a) Five petroleum products including petrol and diesel
75
(c) I, II, III and IV only
76
(d) Creates current resources but carries future liability
77
(a) A-iii, B-ii, C-i, D-iv
78
(b) Forced reliance on borrowing and high deficits
79
(d) Tax rates and the amount of tax revenue collected
80
(d) The government liquidating its stake in Public Sector Enterprises (PSEs)
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.
