Official Answer Key & Detailed Solution
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Correct Answer: Option (A) — 1 only
Concept & Option Breakdown
Standard Reference VerifiedStatement 1 is correct: A slowing economic growth rate often suppresses corporate profits, business activities, and household incomes, leading to reduced buoyancy in tax collections and causing the tax-to-GDP ratio to drop.
Statement 2 is incorrect: A change in the tax-to-GDP ratio does not directly reflect income distribution or equity. Equity depends on the progressive or regressive nature of the tax structure and welfare redistribution policies, which cannot be inferred simply from aggregate tax-to-GDP changes.
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