MCQ
upsc-p1-economy-money-rbi-monetary-policy MCQ - Practice Questions with Answers
Solve 10 upsc-p1-economy-money-rbi-monetary-policy questions for RAS/RPSC preparation.
Practice questions
Q1Match List I with List II: List I (Provision) (a) Section 45ZA (b) Section 45ZB (c) Section 45ZN (d) Section 45ZL List II (Subject) 1. Constitution of the Monetary Policy Committee 2. Publication of Monetary Policy Committee minutes 3. Notification of the inflation target 4. Accountability for failure to maintain the inflation target Select the correct answer using the code given below.
Section 45ZA concerns notification of the inflation target; Section 45ZB constitutes the Monetary Policy Committee; Section 45ZN provides accountability for failure; and Section 45ZL requires publication of minutes. Therefore, option B gives the complete match.
Q2Consider the following statements: 1. RBI issues bank notes except the one-rupee note and coins, which are issued by the Government of India. 2. RBI's management of foreign exchange reserves means that the exchange rate is a fixed official target in the same manner as CPI inflation. Which of the statements given above is/are correct? Select the correct answer using the code given below.
Statement 1 is correct. RBI issues bank notes other than the one-rupee note, while the Government of India issues the one-rupee note and coins. Statement 2 is incorrect: RBI may intervene against excessive currency volatility, but the exchange rate is not a fixed official target like CPI inflation.
Q3Consider the following statements about money creation: 1. Reserve money is composed mainly of RBI liabilities, including currency in circulation and bankers' deposits with RBI. 2. A bank loan usually creates a deposit in the borrower's account. 3. The money multiplier remains fixed regardless of cash preference, regulation and credit demand. Which of the statements given above are correct? Select the correct answer using the code given below.
Statements 1 and 2 are correct. Reserve money is based mainly on RBI liabilities, while bank lending generally creates a corresponding deposit. Statement 3 is incorrect because the multiplier varies with cash preference, regulation, risk appetite and credit demand.
Q4Arrange the following stages of the interest-rate transmission chain in their usual order: (a) Changes in bank deposit and lending rates (b) Changes in consumption and investment (c) Change in the policy repo rate (d) Changes in money-market rates and bond yields Select the correct answer using the code given below.
The policy repo rate first influences operating and money-market rates and bond yields. These feed into bank deposit and lending rates, which then affect consumption and investment. Hence the sequence in option A is correct; output and inflation effects follow with a lag.
Q5Consider the following statements about the Monetary Policy Committee: 1. It has six members, three from the RBI side and three appointed by the Central Government. 2. Every member has one vote, and the RBI Governor has a casting vote in case of a tie. 3. The law requires the Committee to meet at least four times a year. Which of the statements given above are correct? Select the correct answer using the code given below.
All three statements are correct. The six-member Committee is evenly divided between RBI-side and government-appointed members. Each member votes once, the Governor breaks a tie, and four meetings a year is the statutory minimum.
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6Consider the following statements about statutory reserve requirements: 1. CRR is maintained as cash balance with RBI. 2. SLR may be maintained by banks in specified liquid assets such as cash, gold and approved securities. 3. An increase in CRR releases primary liquidity into the banking system. 4. A very high SLR can crowd out private credit. Which of the statements given above are correct? Select the correct answer using the code given below.
7Match List I with List II: List I (Instrument or action) (a) Increase in CRR (b) Cut in CRR (c) OMO sale by RBI (d) Standing Deposit Facility List II (Immediate feature or effect) 1. Releases primary liquidity 2. Absorbs liquidity through an outright securities transaction 3. Allows surplus funds to be parked with RBI without collateral 4. Withdraws lendable resources from banks Select the correct answer using the code given below.
8Consider the following statements about monetary policy transmission: 1. Demand-pull inflation is generally more responsive to rate increases than food or fuel supply shocks. 2. Healthy bank balance sheets and externally benchmarked loans can make transmission faster. 3. A repo rate cut necessarily makes informal credit cheaper immediately. Which of the statements given above are correct? Select the correct answer using the code given below.
9RBI purchases foreign exchange and then sterilises the resulting rupee-liquidity effect through a securities sale. Arrange the following events in their logical order: (a) Market participants pay RBI for the securities (b) RBI purchases foreign exchange (c) Rupee liquidity initially increases (d) Rupee liquidity is absorbed through the securities sale Select the correct answer using the code given below.
10Consider the following statements: 1. An outright purchase of government securities by RBI adds durable rupee liquidity and may soften bond yields. 2. A repo transaction and an open market operation are identical because both may involve government securities. Which of the statements given above is/are correct? Select the correct answer using the code given below.