Day-536 | Daily MCQs | UPSC Prelims | ECONOMY

Answer: B
Explanation:
Accommodating transactions:
● Statement 1 is incorrect: Accommodating transactions are also termed as the ‘below the line’
items. It implies those economic transactions carried out with the purpose of meeting the gap
in autonomous transactions. They are determined by the net consequences of the
autonomous items, that is, whether the BoP is in surplus or deficit.
● Statement 2 is correct: The official reserve transactions are seen as the accommodating item
in the BoP .
● Statement 3 is correct: Accommodating transactions compensate for the surplus or deficit
brought about by autonomous transactions. It seeks to bring equality between the payments
and receipts of foreign exchange.
● These transactions are carried out for maintaining the balance in the Balance of Payment
Account. These transactions fall in the capital account only.
● These transactions happen in the Government sector only.
Autonomous transaction:
● International economic transactions are called autonomous when transactions are made
independently of the state of the BoP (for instance due to profit motive).
● Autonomous transactions will include imports and exports (current account transactions) and
also lending or borrowing of loans (cross border) or payment or receipt of interests thereon.

 Answer: C

Explanation:
● Sir Thomas Gresham lived from 1519 to 1579 and wrote about the value and minting of coins
while working as a financier.
● It states that, in a fixed exchange rate system, “bad money drives out good”.
● It comes into play when the exchange rate between two currencies is fixed by the government
at a certain ratio that is different from market exchange rate.
Or
● When the price of a currency in terms of another currency is arbitrarily fixed by lawmakers, it
leads to a shortage in the supply of the currency that is undervalued, while there is at the
same time an over-supply of the currency that is overvalued.
● The law observes that legally overvalued currency will drive legally undervalued currency out
of circulation.

3. Answer: A
Explanation:
● Production Linked Incentive Scheme (PLI) was launched in April , 2020. PLI offers a production
linked incentive to boost domestic manufacturing and attract large investments in various
sectors.
● The scheme shall extend an incentive of 4% to 6% on incremental sales (over base year) of
goods manufactured in India and covered under target segments, to eligible companies, for a
period of five (5) years subsequent to the base year as defined.
● The Scheme is open for applications for a period of 4 months initially which may be extended.
Support under the Scheme shall be provided for a period of five (5) years subsequent to the
base year

4. Answer: D
Explanation:
● Tax Base: Tax base is defined as the total value of the financial streams or assets on which
tax can be imposed by the government. For example, in case of income tax, the tax base is
all the income that can be taxed by the government (taxable income). If the minimum
amount/threshold of the income on which tax is imposed is lowered, this will automatically
increase (widen) the tax base; if it is raised, the tax base will be narrowed. In case of service
tax, tax base is the value of services on which service tax is imposed. For example, if CCD sells
tea/coffee worth Rs. 10 crore and of course it collects service tax/GST on 10 crores, so tax
base will be Rs. 10 crores. In case of property tax, tax base is the value of property on which
property tax is imposed. Because the size of the tax base influences the taxable revenues that
are available to a government, the size and growth of the tax base is crucial to the planning
efforts of any government.
● Tax Buoyancy: Tax buoyancy is an indicator to measure efficiency and responsiveness of
revenue mobilization in response to growth in the GDP or National Income. It is measured
as a ratio of growth in Tax Revenue to the growth in nominal GDP (i.e., ratio of percentage
change in tax revenue to percentage change in nominal GDP). Tax buoyancy greater than one
is good for the economy.
● Tax Elasticity: The tax elasticity measures the responsiveness of tax revenue to changes in tax
rate and is defined as the ratio of percentage change in tax revenue to percentage change in
tax rate.

5. Answer: B
Explanation:
● A direct tax is a tax that a person or organization pays directly to the entity that imposed it.
Examples include income tax, real property tax, personal property tax, and taxes on assets, all
of which are paid by an individual taxpayer directly to the government.
● List of direct tax:

THE PT QUEST 2024 LUKMAAN IAS

o Income Tax
o Corporate Tax
o Securities Transaction Tax
o Capital Gains Tax
o Gift Tax
o Wealth Tax
o Land revenue
o Property tax
o Dividend distribution tax
o Equalization levy
● Indirect tax is the tax levied on the consumption of goods and services. It is not directly levied
on the income of a person. Instead, he/she has to pay the tax along with the price of goods or
services bought by the seller.
● List of indirect tax:
o Sales Tax
o Value Added Tax (VAT)
o Goods & Services Tax (GST)
o Luxury tax
o Stamp duty
o Custom Duty