The term 'Fiscal Drag' refers to: MCQ with Answer and Explanation

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The term 'Fiscal Drag' refers to:

A. Increase in fiscal deficit

B. Deliberate reduction in government spending

C. Automatic increase in tax revenue due to inflation

D. Decrease in tax rates

Answer: Option C

Solution (By JKSSB Mock Tests)

Fiscal drag occurs when inflation pushes taxpayers into higher tax brackets, increasing tax revenue without any change in tax rates, acting as an automatic stabiliser.

This question belongs to: Economy GK Economy Set 1

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Question #1

The 'Food Safety and Standards Authority of India' works under which ministry?

A. Ministry of Food Processing Industries

B. Ministry of Agriculture

C. Ministry of Commerce

D. Ministry of Health and Family Welfare

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Correct Answer: Option D

Explanation:
FSSAI functions under the Ministry of Health and Family Welfare.

This question belongs to: Economy GK Economy Set 1

Question #2

Purchasing Power Parity theory states that exchange rates between currencies adjust to equalize:

A. government budget deficits

B. the purchasing power of currencies in terms of goods

C. inflation rates only

D. interest rates

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Correct Answer: Option B

Explanation:
Purchasing Power Parity says exchange rates adjust so that identical goods cost the same in different currencies.

This question belongs to: Economy GK Economy Set 1

Question #3

The 'Pigou effect' suggests that falling prices:

A. increase unemployment

B. increase real wealth and consumption

C. reduce real wealth

D. reduce money supply

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Correct Answer: Option B

Explanation:
The Pigou effect states that lower prices raise real wealth and stimulate consumption.

This question belongs to: Economy GK Economy Set 1

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