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Question 1 of 5
1. Question
2 points
With reference to ‘Goods and Services Tax (GST), consider the following statements:
It was initially decided to introduce GST on the basis of the report of the Kelkar Committee.
All the benefits which the state VAT brought to the market and economy are the same in the case of GST, too.
The threshold for availing of the Compensation is Rs. 50 lakhs – with the Service providers kept out of it.
Which of the statements given above is/are correct?
Correct
ANSWER: D Explanation:
Goods and Services Tax is an indirect tax used in India on the supply of goods and services. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes.
Statement 1 is correct: After studying the Kelkar Committee report, the Government in 2016 decided to introduce the new tax since the financial year 210-11. Lack of consensus between the centre and states kept the process delayed – to sort out the contentious issues, one after another; two independent expert committees submitted their advices to the Government. Finally, the Constitution (101st Amendment Bill was cleared by the Parliament by early August 2016 – paving the way for its implementation. Finally, the federal indirect tax GST was enforced by the Government on July 1, 2017.
Statement 2 is correct: All the benefits which the state VAT brought to the market and economy are the same in the case of GST, too.
Statement 3 is correct: The threshold for availing the Compensation is Rs. 50 lakhs – with the Service providers kept out of it.
Hence, option D is correct.
Incorrect
ANSWER: D Explanation:
Goods and Services Tax is an indirect tax used in India on the supply of goods and services. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes.
Statement 1 is correct: After studying the Kelkar Committee report, the Government in 2016 decided to introduce the new tax since the financial year 210-11. Lack of consensus between the centre and states kept the process delayed – to sort out the contentious issues, one after another; two independent expert committees submitted their advices to the Government. Finally, the Constitution (101st Amendment Bill was cleared by the Parliament by early August 2016 – paving the way for its implementation. Finally, the federal indirect tax GST was enforced by the Government on July 1, 2017.
Statement 2 is correct: All the benefits which the state VAT brought to the market and economy are the same in the case of GST, too.
Statement 3 is correct: The threshold for availing the Compensation is Rs. 50 lakhs – with the Service providers kept out of it.
Hence, option D is correct.
Question 2 of 5
2. Question
2 points
Consider the following statements:
A credit Default Swap (CDS) is a credit derivative that can be used to transfer credit risk from the investor exposed to the risk to an investor willing to take the risk.
CDS may lead to a ‘contagion effect’ whereby the credit risk of one country gets exported to another country similar to what happened during the US ‘subprime’ crisis.
Which of the statements given above is/are correct?
Correct
ANSWER: C
Explanation:
Statement 1 is correct: Credit Default Swap (CDS) is a credit derivative transaction in which two parties enter into an agreement, whereby one party (called the ‘protection buyer) pays the other party (called the ‘protection seller’) periodic payments for the specified life of the agreement. It is a credit derivative that can be used to transfer credit risk from the investor exposed to the risk (called protection buyer) to an investor willing to take the risk (called protection seller).
Statement 2 is correct: CDS may lead to a ‘contagion effect’ whereby the credit risk of one country gets exported to another country similar to what happened during the US ‘subprime’ crisis.
Hence, option C is correct.
Incorrect
ANSWER: C
Explanation:
Statement 1 is correct: Credit Default Swap (CDS) is a credit derivative transaction in which two parties enter into an agreement, whereby one party (called the ‘protection buyer) pays the other party (called the ‘protection seller’) periodic payments for the specified life of the agreement. It is a credit derivative that can be used to transfer credit risk from the investor exposed to the risk (called protection buyer) to an investor willing to take the risk (called protection seller).
Statement 2 is correct: CDS may lead to a ‘contagion effect’ whereby the credit risk of one country gets exported to another country similar to what happened during the US ‘subprime’ crisis.
Hence, option C is correct.
Question 3 of 5
3. Question
2 points
With reference to the New Industrial Policy of 1991, consider the following statements:
The government went on to encourage foreign investment and FDI started in India in 1991 itself.
India received financial support from the IMF with conditions to go for structural re-adjustment to fight out the Balance of Payment (BoP) crisis.
Industries were classified into ‘polluting’ and ‘non-polluting categories and announced that non-polluting industries might be set up anywhere whereas polluting industries can be set up at least 25 km away from the million cities.
Which of the statements given above are correct?
Correct
ANSWER: D
Explanation:
Statement 2 is correct: India was faced with a severe balance of payment crisis by June 1991. India reached out to the World Bank and the IMF for help. India received financial support from the IMF to fight out the BoP crisis of 1990-91 with various conditions. These IMF conditionalities required the Indian economy to go for a structural re-adjustment.
Statement 1 is correct: So, India has initiated a policy reform in the form of the New Industrial Policy, 1991. The government went on to encourage foreign investment and FDI started in India in 1991 itself.
Statement 3 is correct: Industries were classified into ‘polluting’ and ‘non-polluting categories and announced that non-polluting industries might be set up anywhere wherease polluting industries can be set up at least 25 km away from the million cities.
Hence, option D is correct.
Incorrect
ANSWER: D
Explanation:
Statement 2 is correct: India was faced with a severe balance of payment crisis by June 1991. India reached out to the World Bank and the IMF for help. India received financial support from the IMF to fight out the BoP crisis of 1990-91 with various conditions. These IMF conditionalities required the Indian economy to go for a structural re-adjustment.
Statement 1 is correct: So, India has initiated a policy reform in the form of the New Industrial Policy, 1991. The government went on to encourage foreign investment and FDI started in India in 1991 itself.
Statement 3 is correct: Industries were classified into ‘polluting’ and ‘non-polluting categories and announced that non-polluting industries might be set up anywhere wherease polluting industries can be set up at least 25 km away from the million cities.
Hence, option D is correct.
Question 4 of 5
4. Question
2 points
With reference to ‘Currency Convertibility’ in India, consider the following statements:
The issue of currency convertibility is concerned with foreign currency outflow only.
The Current Account is fully convertible whereas the capital account is partially convertible in India.
Which of the statements given above is/are incorrect?
Correct
ANSWER: D
Explanation:
Statement 1 is correct: An economy might allow its currency full or partial convertibility in the current and the capital accounts. If a domestic currency is allowed to convert into foreign currency for all current account purposes, it is a case of full current account convertibility. Similarly, in cases of capital outflow, if the domestic currency is allowed to convert into foreign currency, it is a case of full capital account convertibility. If the situation is of partial convertibility, then the portion allowed by the government can be converted into foreign currency for current and capital purposes. It should always be kept in mind that the issues of currency convertibility are concerned with foreign currency outflow only.
Statement 2 is correct: In India, the Current Account is fully convertible whereas the capital account is partially convertible.
Hence, option D is correct.
Incorrect
ANSWER: D
Explanation:
Statement 1 is correct: An economy might allow its currency full or partial convertibility in the current and the capital accounts. If a domestic currency is allowed to convert into foreign currency for all current account purposes, it is a case of full current account convertibility. Similarly, in cases of capital outflow, if the domestic currency is allowed to convert into foreign currency, it is a case of full capital account convertibility. If the situation is of partial convertibility, then the portion allowed by the government can be converted into foreign currency for current and capital purposes. It should always be kept in mind that the issues of currency convertibility are concerned with foreign currency outflow only.
Statement 2 is correct: In India, the Current Account is fully convertible whereas the capital account is partially convertible.
Hence, option D is correct.
Question 5 of 5
5. Question
2 points
Consider the following statements with reference to ABENOMICS:
The ‘Three Arrows of Abenomics’ are ‘Fiscal Stimulus’, ‘Quantitative Easing’, and ‘Inflation Targeting.
Quantitative Easing is when the official interest rate (like India’s Repo Rate) is near sub-zero to encourage lending by banks which may lead to depreciation of the domestic currency.
Which of the statements given above is/are correct?
Correct
ANSWER: B
Explanation:
The Japanese Prime Minister Shinzo Abe had taken a set of economic measures to rejuvenate the sluggish Japanese economy from a recession like situation.
So, statement 1 is incorrect: The ‘Three Arrows of Abenomics’ are ‘Fiscal Stimulus’, ‘Quantitative Easing’, and ‘Structural Reforms’.
Statement 2 is correct: Quantitative Easing is when the official interest rate (like India’s Repo Rate) is near sub-zero to encourage lending by banks which may lead to depreciation of the domestic currency.
Hence, option B is correct.
Incorrect
ANSWER: B
Explanation:
The Japanese Prime Minister Shinzo Abe had taken a set of economic measures to rejuvenate the sluggish Japanese economy from a recession like situation.
So, statement 1 is incorrect: The ‘Three Arrows of Abenomics’ are ‘Fiscal Stimulus’, ‘Quantitative Easing’, and ‘Structural Reforms’.
Statement 2 is correct: Quantitative Easing is when the official interest rate (like India’s Repo Rate) is near sub-zero to encourage lending by banks which may lead to depreciation of the domestic currency.
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