Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Fiscal policy | (I) | A tax that does not depend on income |
| (B) | Discretionary fiscal policy | (II) | A tax that collects a constant fraction of income |
| (C) | Lump-sum tax | (III) | Policy of the government regarding the level of government spending and transfers and the tax structure |
| (D) | Proportional tax | (IV) | A deliberate change in government spending to offset an undesirable shift in investment demand |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
Fiscal policy uses spending and taxes. A tax may be fixed or may depend on income, and a policy step may be deliberate or automatic.
| List-I | List-II | Reason |
|---|---|---|
| (A) Fiscal policy | (III) Policy of the government regarding the level of government spending and transfers and the tax structure | This is its definition. |
| (B) Discretionary fiscal policy | (IV) A deliberate change in government spending to offset an undesirable shift in investment demand | Raising G when I falls is a deliberate action. |
| (C) Lump-sum tax | (I) A tax that does not depend on income | Its amount T stays the same at every income. |
| (D) Proportional tax | (II) A tax that collects a constant fraction of income | T = tY: a fixed fraction t of income. |
NCERT (2026-27): “Box 5.1: Fiscal Policy … We take taxes first. We assume that the government imposes taxes that do not depend on income, called lump-sum taxes equal to T. …” “Case of Proportional Taxes: A more realistic assumption would be that the government collects a constant fraction, t, of income in the form of taxes so that T = tY. …” “… We note that these fiscal policy instruments can be varied to offset the effects of undesirable shifts in investment demand. That is, if investment falls from I0 to I1, government spending can be raised from G0 to G1 so that autonomous expenditure (C + I0 + G0 = C + I1 + G1) and equilibrium income remain the same. This deliberate action to stabilise the economy is often referred to as discretionary fiscal policy …” Glossary: “Fiscal policy – The policy of the government regarding the level of government spending and transfers and the tax structure.” |