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Indian Economy Quiz: Reserve Bank of India and Monetary Policy

  • 10 questions
  • 10 minutes
  • Difficulty: Medium
Useful for:SSCSSC CGLSSC CHSLBankingIBPSSBIRBIUPSC Civil ServicesRRB NTPCState Exams
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About this quiz

This Indian Economy quiz on Reserve Bank of India and Monetary Policy puts 10 multiple-choice questions to you, the verified MCQs published with GK24's note on the topic. Every question carries a full explanation of why the correct option is right and why the other options are wrong, so you learn the fact behind the answer rather than the letter. Attempt it right after reading the note, keep to the timer, and use the explanations at the end to mark what needs another look. Sit it again before the exam as a quick revision of the topic.

Questions in this quiz

10 questions with answers and explanations

Q2.Indian EconomyEasy

The Reserve Bank of India was nationalised with effect from

  1. A.1 April 1935
  2. B.1 January 1949
  3. C.15 August 1947
  4. D.19 July 1969
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Correct answer: B. 1 January 1949

The Bank began as a shareholders' institution, and the Reserve Bank (Transfer to Public Ownership) Act, 1948 transferred its shares to the central government with effect from the first day of 1949, since when it has been fully owned by the Government of India.

Q3.Indian EconomyEasy

The repo rate is the rate at which

  1. A.Commercial banks park their surplus funds with the Reserve Bank
  2. B.The Reserve Bank lends short term funds to commercial banks against government securities
  3. C.A bank lends to its most creditworthy customers
  4. D.The government borrows from the open market
Show answer
Correct answer: B. The Reserve Bank lends short term funds to commercial banks against government securities

In a repurchase agreement a bank sells government securities to the Reserve Bank and agrees to buy them back the next day at a fixed price; the difference is the interest, and the rate is the repo rate.

Q4.Indian EconomyEasy

How many members does the Monetary Policy Committee of India have?

  1. A.Four
  2. B.Five
  3. C.Six
  4. D.Seven
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Correct answer: C. Six

Three of them come from the Reserve Bank, the Governor as chairperson, the Deputy Governor in charge of monetary policy and an officer of the Bank nominated by the Central Board, and three are appointed by the central government from among persons of ability and integrity with knowledge of economics…

Q5.Indian EconomyHard

The Monetary Policy Committee was given statutory basis by amending the Reserve Bank of India Act through which law?

  1. A.The Finance Act, 2016
  2. B.The Banking Regulation Act, 1949
  3. C.The Fiscal Responsibility and Budget Management Act, 2003
  4. D.The Foreign Exchange Management Act, 1999
Show answer
Correct answer: A. The Finance Act, 2016

It amended the Reserve Bank of India Act, 1934 to insert the provisions on the inflation target and on the Monetary Policy Committee, so that the policy rate is now set by a committee and not by the Governor alone, and the framework of flexible inflation targeting became law.

Q6.Indian EconomyHard

The cash reserve ratio that banks must maintain with the Reserve Bank is prescribed under

  1. A.Section 42 of the Reserve Bank of India Act, 1934
  2. B.Section 24 of the Banking Regulation Act, 1949
  3. C.Section 22 of the Reserve Bank of India Act, 1934
  4. D.The Foreign Exchange Management Act, 1999
Show answer
Correct answer: A. Section 42 of the Reserve Bank of India Act, 1934

It requires every scheduled bank to keep with the Reserve Bank a cash balance calculated on its net demand and time liabilities, and this proportion is the cash reserve ratio.

Q7.Indian EconomyMedium

Which of the following is a qualitative instrument of credit control?

  1. A.Open market operations
  2. B.Margin requirements
  3. C.Cash reserve ratio
  4. D.Repo rate
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Correct answer: B. Margin requirements

A margin requirement is the part of the value of a security that the borrower must fund from his own resources; by raising it for loans against a particular commodity the Bank can discourage credit flowing into speculation in that commodity without touching the total supply of credit.

Q8.Indian EconomyMedium

The one rupee note in India is issued by the Government of India and bears the signature of the

  1. A.Governor of the Reserve Bank of India
  2. B.Finance Secretary
  3. C.Union Finance Minister
  4. D.Deputy Governor of the Reserve Bank of India
Show answer
Correct answer: B. Finance Secretary

The one rupee note is not a Reserve Bank note at all: it is issued by the Government of India through the Ministry of Finance, is a legal tender note of the government and carries the signature of the Finance Secretary.

Q9.Indian EconomyHard

Under the minimum reserve system followed by the Reserve Bank of India since 1957, the Bank must hold reserves of

  1. A.Two hundred crore rupees, of which gold is at least one hundred and fifteen crore rupees
  2. B.One hundred and fifteen crore rupees, of which gold is at least eighty five crore rupees
  3. C.Two hundred crore rupees, all of it in gold
  4. D.Five hundred crore rupees, of which gold is at least two hundred crore rupees
Show answer
Correct answer: A. Two hundred crore rupees, of which gold is at least one hundred and fifteen crore rupees

Under the minimum reserve system adopted in 1957 the Bank keeps assets of at least two hundred crore rupees against the notes it issues, of which gold must be worth at least one hundred and fifteen crore rupees and the rest is held in foreign securities.

Q10.Indian EconomyMedium

When the Reserve Bank raises the repo rate to control inflation, the likely immediate effect is that

  1. A.Credit becomes costlier and the growth of money supply slows
  2. B.Credit becomes cheaper and borrowing rises
  3. C.The fiscal deficit of the central government falls automatically
  4. D.The statutory liquidity ratio rises in the same proportion
Show answer
Correct answer: A. Credit becomes costlier and the growth of money supply slows

A higher repo rate raises the cost at which banks borrow from the Reserve Bank, so they raise their own lending rates.

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