In which type of tax is the marginal tax rate higher than the average tax rate?
- A.Digressive
- B.Proportional
- C.Regressive
- D.Progressive
Correct answer
Explanation
The correct answer is D, Progressive. In a progressive tax the rate rises as income rises, so each extra rupee is taxed at a higher rate than the rupees before it. The marginal rate is the tax on the last rupee earned, and the average rate is total tax divided by total income. When every new slab carries a higher rate, the marginal rate stays above the average. India's income tax, with slabs rising from nil to 30 percent, is the everyday example. A is wrong because a digressive tax is only mildly progressive: its rate rises slowly and then levels off at a flat rate, so it is treated as a diluted form, not the standard case. B is wrong because a proportional tax charges the same rate at every income, so the marginal and average rates are equal. C is wrong because in a regressive tax the rate falls as income rises, so the marginal rate is below the average. Exam tip: marginal above average means progressive, equal means proportional, below means regressive.
Practice Questions
View allAccording to the law of diminishing marginal utility, as the amount of a good consumed increases, the marginal utility of that good tends to
- A.improve
- B.diminish
- C.remain constant
- D.first diminish and then improve
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Each extra unit of a good gives a consumer less additional satisfaction than the unit before it, so marginal utility falls as consumption rises.
Read the full explanation →Consider the following statements about impact of tax : 1. A tax is shifted forward to consumers if the demand is inelastic relative to supply. 2. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
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The burden of a tax falls more heavily on whichever side of the market is less elastic, the side that cannot easily walk away.
Read the full explanation →UBI, as an alternative for subsidies in poverty alleviation, stands for
- A.Union Basic Income
- B.Undefined Basic Income
- C.Unconditional Basic Income
- D.Universal Basic Income
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UBI is the idea of paying every citizen a fixed sum of money regularly, without conditions, in place of a large number of separate subsidies and welfare schemes.
Read the full explanation →Who among the following is the Chairman of the Fourteenth Finance Commission?
- A.C. Rangarajan
- B.Vijay Kelkar
- C.Y. V. Reddy
- D.Rakesh Mohan
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The Fourteenth Finance Commission, set up in 2013 for the award period 2015-2020, was chaired by Y. V. Reddy, a former Governor of the Reserve Bank of India.
Read the full explanation →Why was constitutional amendment needed for introducing GST?
- A.States were not willing to agree with the Union for introduction of GST without amendment in the Constitution.
- B.GST was to be implemented on concurrent base and Article 246 was inadequate for such a case.
- C.The Empowered Committee of Finance Ministers had recommended for constitutional amendment.
- D.The GST Council had recommended for constitutional amendment so that its power enhances.
Show answer
GST is levied by the Union and the States together on the same supply, and Article 246, which splits taxing powers between them through separate lists, did not allow such a concurrent tax.
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