The primary purpose of the RBI monetary policy is to maintain:
- A.wealth
- B.exchange rate
- C.growth
- D.price stability
Correct answer
Explanation
The correct answer is D, price stability. The Reserve Bank Of India Act, as amended in 2016, states that the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. Under the inflation targeting framework the government, in consultation with the RBI, sets the target for consumer price inflation at four per cent with a band of two per cent on either side. A six member Monetary Policy Committee, three from the RBI including the Governor, who has the casting vote, and three appointed by the government, decides the policy repo rate, usually every two months. Option A is wrong because creating wealth is not a task of monetary policy. Option B is wrong because the RBI manages the exchange rate under FEMA, but only to curb sharp volatility, not as its main aim. Option C is wrong because growth is an objective the RBI must keep in mind, yet it comes after price stability in the law. Exam tip: price stability first, growth kept in mind, four per cent inflation target with a two per cent band.
Practice Questions
View allAccording to the law of diminishing marginal utility, as the amount of a good consumed increases, the marginal utility of that good tends to
- A.improve
- B.diminish
- C.remain constant
- D.first diminish and then improve
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Each extra unit of a good gives a consumer less additional satisfaction than the unit before it, so marginal utility falls as consumption rises.
Read the full explanation →Consider the following statements about impact of tax : 1. A tax is shifted forward to consumers if the demand is inelastic relative to supply. 2. A tax is shifted backward to producers if the supply is relatively more inelastic than demand. Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.Both 1 and 2
- D.Neither 1 nor 2
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The burden of a tax falls more heavily on whichever side of the market is less elastic, the side that cannot easily walk away.
Read the full explanation →UBI, as an alternative for subsidies in poverty alleviation, stands for
- A.Union Basic Income
- B.Undefined Basic Income
- C.Unconditional Basic Income
- D.Universal Basic Income
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UBI is the idea of paying every citizen a fixed sum of money regularly, without conditions, in place of a large number of separate subsidies and welfare schemes.
Read the full explanation →Who among the following is the Chairman of the Fourteenth Finance Commission?
- A.C. Rangarajan
- B.Vijay Kelkar
- C.Y. V. Reddy
- D.Rakesh Mohan
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The Fourteenth Finance Commission, set up in 2013 for the award period 2015-2020, was chaired by Y. V. Reddy, a former Governor of the Reserve Bank of India.
Read the full explanation →Why was constitutional amendment needed for introducing GST?
- A.States were not willing to agree with the Union for introduction of GST without amendment in the Constitution.
- B.GST was to be implemented on concurrent base and Article 246 was inadequate for such a case.
- C.The Empowered Committee of Finance Ministers had recommended for constitutional amendment.
- D.The GST Council had recommended for constitutional amendment so that its power enhances.
Show answer
GST is levied by the Union and the States together on the same supply, and Article 246, which splits taxing powers between them through separate lists, did not allow such a concurrent tax.
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