1.

(a) Define money. Explain the Primary functions of money. (b) Mention five differences between a Direct Tax and an Indirect Tax.

Answer»

(a) Money: Anything which is widely accepted in payments for goods, or in discharge of other kinds of business obligations is called money. 

Primary Functions of Money: 

1. Medium of Exchange: Money serves as a medium of exchange. Money is normally accepted as a medium through which all the sales and purchases takes place. As the money is accepted as a common medium of exchange, it has eliminated the difficulties of barter system. 

2. Measure of Value: Money acts as a common measure of value. Under the barter system, the value of a commodity is expressed in terms of other commodity. When we express the value of a commodity in terms of money, it is known as price. These money provides a language of economic communication.

(b) Five differences between a direct tax and an indirect tax:

Direct TaxIndirect Tax
1. They are directly paid to the Government by the people on whom they are imposed.They are paid to the Government by one person but their burden is borne by another person
2. They cannot be shifted i.e. impact and incidence is on the same person.They can be shifted i.e. impact is on one person and incidence is on an another person.
3. Taxes imposed on production or incomeTaxes imposed on consumption are indirect
4. It is progressive because the tax rate increases with an increase in income.It is regressive because the common people bear this tax.
5. They generate social consciousness among people.

Examples: Income Tax, Wealth tax.		They do not generate social consciousness as they are taxes in the dark.
Examples: Sales Tax, Excise Duty.


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