Question
Which of the following could be the after-effects of demonetization?
Select the correct answer using the code given below:
- RBI's liability would reduce to the extent the old notes does not come to the banking system
- Transfer of wealth from holders of illicit black money to the public sector
- The shift of resources from the private sector to the government
- Indirect and corporate taxes would decline to the extent growth slows
Select the correct answer using the code given below:
Answer: Option D
Answer: (d)
The currency held by the public is the liability of RBI as whenever somebody comes with the currency note to the RBI, it needs to return a sum equivalent to the value of the currency.
So, if some old notes do not come to the banking system then they will become invalid, and RBI will never have to return the equivalent value of those currency notes.
If the black money does not come back to the banking system after demonetization then RBI's liability would reduce by that amount and its net Assets (net worth) will increase.
This ultimately means that the private money has been transferred to the RBI. Hence it is a kind of transfer of illicit black money to the public sector.
Demonetization may have some negative impact on GDP growth which will impact the revenues from indirect and corporate taxes.
"Black economy is the market-based production of goods and services – legal or illegal – that escapes capture in the official GDP statistics. And the tax that the government forfeits on this activity circulates as black money."
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Answer: (d)
The currency held by the public is the liability of RBI as whenever somebody comes with the currency note to the RBI, it needs to return a sum equivalent to the value of the currency.
So, if some old notes do not come to the banking system then they will become invalid, and RBI will never have to return the equivalent value of those currency notes.
If the black money does not come back to the banking system after demonetization then RBI's liability would reduce by that amount and its net Assets (net worth) will increase.
This ultimately means that the private money has been transferred to the RBI. Hence it is a kind of transfer of illicit black money to the public sector.
Demonetization may have some negative impact on GDP growth which will impact the revenues from indirect and corporate taxes.
"Black economy is the market-based production of goods and services – legal or illegal – that escapes capture in the official GDP statistics. And the tax that the government forfeits on this activity circulates as black money."
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