[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 26 March 2022 – Economy – INSIGHTSIAS

Solution: d)

Demand-Pull Inflation

This type of inflation is caused due to an increase in aggregate demand in the economy.

Causes of Demand-Pull Inflation:

• A growing economy or increase in the supply of money – When consumers feel confident, they spend more and take on more debt. This leads to a steady increase in demand, which means higher prices.
• Asset inflation or Increase in Forex reserves.
• Government spending or Deficit financing by the government – When the government spends more freely, prices go up.
• Due to fiscal stimulus.
• Increased borrowing.
• Depreciation of rupee.
• Low unemployment rate.

Effects of Demand-Pull Inflation:

• Shortage in supply
• Increase in the prices of the goods (inflation).
• The overall increase in the cost of living.

Solution: b)

Cash Management Bills (CMBs) are short term bills.

The bills are issued by the RBI on behalf of the government. Hence the CMBs are short-term money market instruments that help the government to meet its temporary cash flow mismatches.

CMBs are eligible as SLR securities. Investment in CMBs is also recognized as an eligible investment in Government securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949.

Solution: b)

An ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property. The most common ad valorem taxes are property taxes levied on real estate.

Solution: d)

• A tax base is the total amount of assets or revenue that a government can tax.

• To increase the tax base India should bring more sectors into the purview of tax regime. Thus, bringing agriculture sector into the purview of income tax likely to increase the tax base.

• Encouraging entrepreneurial activity will increase the profit of existing companies as well as encourage the mushrooming of new companies. Thus, it is likely to increase the tax base.

Solution: a)

The IMF’s various lending instruments are tailored to different types of balance of payments need as well as the specific circumstances of its diverse membership. All IMF members are eligible to access the Fund’s resources in the General Resources Account (GRA) on non-concessional terms, but the IMF also provides concessional financial support (currently at zero interest rates) which is better tailored to the diversity and needs of low-income countries. 

The IMF provides financial support for balance of payments needs upon request by its member countries. Unlike development banks, the IMF does not lend for specific projects.