Monetary & Fiscal Policy MCQ — 601 Practice Questions with Answers

Explanation

Under the Monetary Policy Framework Agreement notified by the Centre and extended for FY26 to FY31, the RBI targets 4% CPI inflation with a tolerance band of 2% to 6%. This framework, first adopted in 2016 on the recommendations of the Urjit Patel Committee, requires the RBI to submit a report to the Centre if inflation stays outside the band for three consecutive quarters.

Explanation

PCGS 2.0 provided sovereign guarantee of 20% of first loss for purchase of bonds or commercial papers of NBFCs, HFCs, and MFIs by public sector banks. This helped restore market confidence in the NBFC sector after the IL&FS/DHFL crisis and eased the liquidity crunch faced by these entities during COVID-19.

Explanation

The Phillips Curve, developed by A.W. Phillips in 1958, shows an inverse relationship between inflation and unemployment in the short run. When inflation rises, unemployment tends to fall, and vice versa. However, the long-run Phillips Curve is vertical (Natural Rate of Unemployment hypothesis by Friedman).

Explanation

The 56th GST Council (September 3-4, 2025) abolished the 12% and 28% slabs and adopted two primary slabs — 5% and 18%. A new 40% slab was introduced for luxury and demerit goods (luxury vehicles, aerated drinks, gambling). Essential food items such as UHT milk, Indian breads and paneer were exempted or placed under nil GST where applicable. The reforms came into effect from September 22, 2025.

Explanation

M1 = Currency with public + Demand deposits + Other deposits with RBI. M3 = M1 + Time deposits with banks. M3 is the most commonly used measure of money supply in India (also called aggregate monetary resources).