Daily Quiz: UPSC Prelims Marathon – November 20, 2018

Tax Expenditures does not relate to the expenditures incurred by the Government in the collection of taxes. Rather it refers to the opportunity cost of taxing at concessional rates, or the opportunity cost of giving exemptions, deductions, rebates, deferrals credits etc. to the tax payers.

Tax expenditures indicate how much more revenue could have been collected by the Government if not for such measures. In other words, it shows the extent of indirect subsidy enjoyed by the tax payers in the country.

A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the refundable tax credits that they claim.

Tax deferral refers to instances where a taxpayer can delay paying taxes to some future period. Taxes can sometimes be deferred indefinitely, or may be taxed at a lower rate in the future, particularly for deferral of income taxes

Statements 1 and 4 are correct.

Global financial Stability report and World Economic Outlook are released by IMF

Masala bond is a term is used to refer to rupee-denominated borrowings by Indian entities in overseas markets. The International Finance Corporation (IFC), the investment arm of the World Bank, issued a ₹1,000 crore bond to fund infrastructure projects in India. These bonds were listed on the London Stock Exchange (LSE). IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and cuisine. While it may seem odd to name a staid debt instrument after food stuffs, it has been done in the past. Chinese bonds, named Dim-sum bonds after a popular dish in Hong Kong, have been around for while. So have Japanese bonds named Samurai after the country’s warrior class. These are issued to foreign investors and settled in US dollars. Hence the currency risk lies with the investor and not the issuer, unlike external commercial borrowings (ECBs), where Indian companies raise money in foreign currency loans. While ECBs help companies take advantage of the lower interest rates in international markets, the cost of hedging the currency risk can be significant. If unhedged, adverse exchange rate movements can come back to bite the borrower. But in the case of Masala bonds, the cost of borrowing can work out much lower.

Compulsory licensing is when a government allows someone else to produce the patented product or process without the consent of the patent owner. It is one of the flexibilities on patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.

FATF was formed in1989. It’s an Inter governmental organisation and its purpose is to combat money laundering and terrorism financing. It has 36 members and HQ is located in Paris. It was founded by the initiatives of G7.

All of the above are reason for crowding out effect. The crowding out effect is an economic theory arguing that rising public sector spending drives down or even eliminates private sector spending. One of the most common forms of crowding out takes place when a large government increases its borrowing. The sheer scale of this borrowing can lead to substantial rises in the real interest rate, which has the effect of absorbing the economy’s lending capacity and of discouraging businesses from making capital investments. Other reason is expansionary fiscal policy reduces investment spending by the private sector.

A liquidity trap is a situation, described in Keynesian economics, in which injections of cash into the private banking system by a central bank fail to decrease interest rates and hence make monetary policy ineffective. Thus, interest rate will not decrease thus fail to make economic growth.