If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 1. Cut and optimize the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate Select the correct answer using the code given below:
- A.1 and 2 only
- B.2 only
- C.1 and 3 only
- D.1, 2 and 3
Correct answer
Explanation
The correct answer is B, 2 only. An expansionist policy aims to make money cheaper and more plentiful, so the RBI would not raise the Marginal Standing Facility rate, which makes borrowing dearer.
In an expansionary or easy-money stance the central bank lowers its policy rates and frees up bank funds so that banks lend more and spur demand. Cutting the repo rate, at which banks borrow from the RBI against government securities, lowers their cost of funds. The bank rate, at which the RBI lends for longer periods, is aligned to the MSF rate and also moves down. Cutting the Statutory Liquidity Ratio releases money that banks had to park in government bonds, so they can lend it out.
Raising the MSF rate does the opposite: overnight emergency borrowing becomes costlier, which tightens liquidity.
A is wrong because cutting the SLR (1) is an expansionary step. C is wrong because 1 and 3 are exactly what the RBI would do. D is wrong for the same reason.
Exam tip: easy money = cut repo, bank rate, MSF, CRR, SLR; tight money = raise them.
Practice Questions
View allIn India, which of the following can be considered as public investment in agriculture?
1. Fixing Minimum Support Price for agricultural produce of all crops
2. Computerization of Primary Agricultural Credit Societies
3. Social Capital development
4. Free electricity supply to farmers
5. Waiver of agricultural loans by the banking system
6. Setting up of cold storage facilities by the governments
Select the correct answer using the code given below :
- A.1, 2 and 5 only
- B.1, 3, 4 and 5 only
- C.2, 3 and 6 only
- D.1, 2, 3, 4, 5 and 6
Show answer
Public investment means government spending that creates lasting assets or capacity, while support prices, free power and loan waivers are subsidies or transfers.
Read the full explanation →Consider the following activities :
I. Production of crude oil
II. Refining, storage and distribution of petroleum
III. Marketing and sale of petroleum products
IV. Production of natural gas
How many of the above activities are regulated by the Petroleum and Natural Gas Regulatory Board in our country?
- A.Only one
- B.Only two
- C.Only three
- D.All the four
Show answer
The Petroleum and Natural Gas Regulatory Board covers the downstream chain, refining to sale, but not the production of crude oil and natural gas.
Read the full explanation →Which one of the following equals Personal Disposable Income ?
- A.Personal Income - Direct taxes paid by households and miscellaneous fees, fines, etc.
- B.Private Income - Saving of Private Corporate Sectors - Corporation Tax
- C.Private Income - Taxes
- D.Total expenditure of Households - Income Tax - Gifts received
Show answer
In national income accounting the steps run from private income to personal income to personal disposable income. Private income is the factor income of the private sector plus transfers.
Read the full explanation →With reference to India, consider the following pairs:
Organization : Union Ministry
I. The National Automotive Board : Ministry of Commerce and Industry
II. The Coir Board : Ministry of Heavy Industries
III. The National Centre for Trade Information : Ministry of Micro, Small and Medium Enterprises
How many of the above pairs are correctly matched?
- A.Only one
- B.Only two
- C.All the three
- D.None
Show answer
Each organisation is paired with the wrong ministry. The National Automotive Board works under the Ministry of Heavy Industries; it supports the automobile sector with testing and certification work and helps run schemes for the industry.
Read the full explanation →Which of the following is/are the aim/aims of "Digital India" Plan of the Government of India?
1. Formation of India's own Internet companies like China did.
2. Establish a policy framework to encourage overseas multinational corporations that collect Big Data to build their large data centres within our national geographical boundaries.
3. Connect many of our villages to the Internet and bring Wi-Fi to many of our schools, public places and major tourist centres.
Select the correct answer using the code given below:
- A.1 and 2 only
- B.3 only
- C.2 and 3 only
- D.1, 2 and 3
Show answer
Connecting villages to the Internet and offering Wi-Fi in schools and public places is part of Digital India; the other two are not its stated aims.
Read the full explanation →