What is the main objective of monetary policy?
- A.To increase government expenditure
- B.To maintain price stability and ensure economic growth
- C.To reduce the fiscal deficit
- D.To control foreign exchange reserves
Correct answer
Explanation
The correct answer is B, To maintain price stability and ensure economic growth. Monetary policy is run by the central bank, the Reserve Bank of India, which controls the supply and the cost of money in the economy. Under the RBI Act, 1934, as amended in 2016, its main goal is to keep prices stable while keeping in mind the objective of growth. In 2016 India adopted flexible inflation targeting, with a CPI inflation target of 4 per cent within a band of 2 to 6 per cent, and a six-member Monetary Policy Committee sets the repo rate. Tools such as the repo rate, the cash reserve ratio and open market operations let the RBI make credit cheaper or dearer. Option A is wrong because raising government expenditure is a fiscal policy step decided through the Budget. Option C is wrong because cutting the fiscal deficit is also a fiscal policy goal of the government. Option D is wrong because managing forex reserves is a supporting task of the RBI, not the main aim of monetary policy. Exam tip: monetary policy means the RBI and the repo rate; fiscal policy means the government, taxes and spending.
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.
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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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