Multiple Choice Questions on A decrease in tax to GDP ratio of a country indicates which of the following 1 Slowing economic grow........... for UPSC Civil Services Examination (General Studies) Preparation

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Indian Economy - Understanding the basics of Indian economic system

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    A decrease in tax to GDP ratio of a country indicates which of the following?

    1. Slowing economic growth rate

    2. Less equitable distribution of national income

    Select the correct answer using the codes given below.

    This questions was previously asked in
    UPSC CSP Previous Year Paper (2015)

    1 only

    Incorrect Answer

    2 only

    Incorrect Answer

    Both 1and 2

    Incorrect Answer

    Neither 1 nor 2

    Correct Answer
    Explanation:

    Slowing economic growth will mean lower GDP growth, For the tax/GDP ratio to decrease either the tax collection should decrease or GDP should increase. So, a decrease in tax to GDP ratio may not directly indicate slowing economic growth rate.

    Now considering the first statement if the GDP collection might or might not necessarily increase with a slow growth rate. Hence this option is ruled out. Increase in indirect tax collection may lead to less equality in income distribution but the same cannot be said for increase in direct tax collection. Hence, even this option can be ruled out.


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