Monetary Policy – Indian Economy, Previous Year Questions(UPSC CSE)(2011-24)

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1. Consider the following statements:

  1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.
  2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).
  3. In India, Stock Exchanges can offer separate trading platforms for debts.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 only

(c) 1, 2 and 3

(d) 2 and 3 only

 2. Consider the following statements :

Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.

Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-1

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-1

(c) Statement-I is correct but Statement-II is incorrect

(d) Statement-I is incorrect but Statement-II is correct

3. Which one of the following activities of the Reserve Bank of India is considered to be part of \\\’sterilization’?

(a) Conducting \\\’Open Market Operations\\\’

(b) Oversight of settlement and payment systems

(c) Debt and cash management for the Central and State Governments

(d) Regulating the functions of Non-banking Financial Institutions

4. With reference to the Indian economy, what are the advantages of \\\”Inflation-Indexed Bonds (IIBs)\\\”?

  1. Government can reduce the coupon rates on its borrowing by way of IIBs.
  2. IIBS provide protection to the investors from uncertainty regarding inflation.
  3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

5. With reference to the Indian economy, consider the following statements:

  1. A share of the household financial savings goes towards government borrowings.
  2. Dated securities issued at marked-related rates in auctions form a large component of internal debt.

Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

6. The money multiplier in an economy increases with which one of the following?

(a) Increase in the Cash Reserve Ratio in the banks

(b) Increase in the Statutory Liquidity Ratio in the banks

(c) Increase in the banking habit of the people

(d) Increase in the population of the country

7. In India, the central bank’s function as the ‘lender of last resort’ usually refers to which of the following?

  1. Lending to trade and industry bodies when they fail to borrow from other sources
  2. Providing liquidity to the banks having a temporary crisis
  3. Lending to governments to finance budgetary deficits

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(c) 2 and 3 only

(d) 3 only

8. Consider the following statements:

  1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
  2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
  3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

9. Indian Government Bond Yields are influenced by which of the following?

  1. Actions of the United States Federal Reserve
  2. Actions of the Reserve Bank of India
  3. Inflation and short-term interest rates

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

10. The lowering of Bank Rate by the Reserve Bank of India leads to 

(a) More liquidity in the market

(b) Less liquidity in the market

(c) No change in the liquidity in the market

(d) Mobilization of more deposits by commercial banks

11. 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

12. Consider the following statements:

The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data, popularly known as data diktat, command the payment system providers that

  1. They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India
  2. They shall ensure that the systems are owned and operated by public sector enterprises
  3. They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year

Which of the statements given above is/are correct?

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3

13. The money multiplier in an economy increases with which one of the following?

(a) Increase in the cash reserve ratio

(b) Increase in the banking habit of the population

(c) Increase in the statutory liquidity ratio

(d) Increase in the population of the country

14. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? 

  1. It decides the RBI\\\’s benchmark interest rates,
  2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
  3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below:

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 2 and 3 only

15. When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points which of the following is likely to happen? 

(a) India\\\’s GDP growth rate increases drastically

(b) Foreign Institutional Investors may bring more capital into our country

(c) Scheduled Commercial Banks may cut their lending rates

(d) It may drastically reduce the liquidity to the banking system

16. With reference to Indian economy, consider the following: 

  1. Bank rate
  2. Open market operations
  3. Public debt
  4. Public Revenue

Which of the above is/are component/components of Monetary Policy?

(a) 1 only

(b) 2, 3 and 4

(c) 1 and 2

(d) 1, 3 and 4

17. If the interest rate is decreased in an economy, it will 

(a) Decrease the consumption expenditure in the economy

(b) Increase the tax collection of the Government

(c) Increase the investment expenditure in the economy

(d) Increase the total savings in the economy

18. The terms \\\’Marginal Standing Facility Rate\\\’ and \\\’Net Demand and Time Liabilities\\\’, sometimes appearing in news, are used in relation to

(a) Banking operations

(b) Communication networking

(c) Military strategies

(d) Supply and demand of agricultural products

19. In the context of Indian economy, which of the following is/are the purpose/purposes of \\\’Statutory Reserve Requirements\\\’?

  1. To enable the Central Bank to control the amount of advances the banks can create
  2. To make the people\\\’s deposits with banks safe and liquid
  3. To prevent the commercial banks from making excessive profits
  4. To force the banks to have sufficient vault-cash to meet their day-to-day requirements

Select the correct answer using the code given below.

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2, 3 and 4

20. An increase in the Bank Rate generally indicates that the

(a) Market rate of interest is likely to fall

(b) Central Bank is no longer making loans to commercial banks

(c) Central Bank is following an easy money policy

(d) Central Bank is following a tight money policy

21. The Reserve Bank of India regulates the commercial banks in matters of

  1. Liquidity of assets
  2. Branch expansion
  3. Merger of banks
  4. Winding-up of banks

Select the correct answer using the codes given below:

(a) 1 and 4 only

(b) 2, 3 and 4 only

(c) 1, 2 and 3 only

(d) 1, 2, 3 and 4

22. In the context of Indian economy, \\\’Open Market Operations\\\’ refers to 

(a) Borrowing by scheduled banks from the RBI

(b) Lending by commercial banks to industry and trade

(c) Purchase and sale of government securities by the RBI

(d) None of the above

23. The Reserve Bank of India (RBI) acts as a bankers’ bank. 

This would imply which of the following?

  1. Other banks retain their deposits with the RBI.
  2. The RBI lends funds to the commercial banks in times of need.
  3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below:

(a) 2, and 3 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

24. Which of the following measures would result in an increase in the money supply in the economy? 

  1. Purchase of government securities from the public by the Central Bank
  2. Deposit of currency in commercial banks by the public
  3. Borrowing by the government from the Central Bank
  4. Sale of government securities to the public by the Central Bank

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 and 4 only

(c) 1 and 3

(d) 2, 3 and 4

——————————————————————————————————–

Key with Explanation:

1. Consider the following statements:

  1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.
  2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).
  3. In India, Stock Exchanges can offer separate trading platforms for debts.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 3 only

(c) 1, 2 and 3

(d) 2 and 3 only

Explanation: 

2. Consider the following statements :

Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.

Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-1

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-1

(c) Statement-I is correct but Statement-II is incorrect

(d) Statement-I is incorrect but Statement-II is correct

Explanation:

3. Which one of the following activities of the Reserve Bank of India is considered to be part of \\\’sterilization’?

(a) Conducting \\\’Open Market Operations\\\’

(b) Oversight of settlement and payment systems

(c) Debt and cash management for the Central and State Governments

(d) Regulating the functions of Non-banking Financial Institutions

Explanation:

4. With reference to the Indian economy, what are the advantages of \\\”Inflation-Indexed Bonds (IIBs)\\\”?

  1. Government can reduce the coupon rates on its borrowing by way of IIBs.
  2. IIBS provide protection to the investors from uncertainty regarding inflation.
  3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Explanation:

5. With reference to the Indian economy, consider the following statements:

  1. A share of the household financial savings goes towards government borrowings.
  2. Dated securities issued at marked-related rates in auctions form a large component of internal debt.

Which of the above statements is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

Explanation:

6. The money multiplier in an economy increases with which one of the following?

(a) Increase in the Cash Reserve Ratio in the banks

(b) Increase in the Statutory Liquidity Ratio in the banks

(c) Increase in the banking habit of the people

(d) Increase in the population of the country

Explanation:

7. In India, the central bank’s function as the ‘lender of last resort’ usually refers to which of the following?

  1. Lending to trade and industry bodies when they fail to borrow from other sources
  2. Providing liquidity to the banks having a temporary crisis
  3. Lending to governments to finance budgetary deficits

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(c) 2 and 3 only

(d) 3 only

Explanation:

8. Consider the following statements:

  1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
  2. Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
  3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Explanation:

9. Indian Government Bond Yields are influenced by which of the following?

  1. Actions of the United States Federal Reserve
  2. Actions of the Reserve Bank of India
  3. Inflation and short-term interest rates

Select the correct answer using the code given below.

(a) 1 and 2 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

Explanation:

10. The lowering of Bank Rate by the Reserve Bank of India leads to 

(a) More liquidity in the market

(b) Less liquidity in the market

(c) No change in the liquidity in the market

(d) Mobilization of more deposits by commercial banks

Explanation:

11. 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

Explanation:

12. Consider the following statements:

The Reserve Bank of India’s recent directives relating to ‘Storage of Payment System Data, popularly known as data diktat, command the payment system providers that

  1. They shall ensure that entire data relating to payment systems operated by them are stored in a system only in India
  2. They shall ensure that the systems are owned and operated by public sector enterprises
  3. They shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year

Which of the statements given above is/are correct?

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 1, 2 and 3

Explanation:

13. The money multiplier in an economy increases with which one of the following?

(a) Increase in the cash reserve ratio

(b) Increase in the banking habit of the population

(c) Increase in the statutory liquidity ratio

(d) Increase in the population of the country

Explanation:

14. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? 

  1. It decides the RBI\\\’s benchmark interest rates,
  2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
  3. It functions under the chairmanship of the Union Finance Minister.

Select the correct answer using the code given below:

(a) 1 only

(b) 1 and 2 only

(c) 3 only

(d) 2 and 3 only

Explanation:

15. When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points which of the following is likely to happen? 

(a) India\\\’s GDP growth rate increases drastically

(b) Foreign Institutional Investors may bring more capital into our country

(c) Scheduled Commercial Banks may cut their lending rates

(d) It may drastically reduce the liquidity to the banking system

Explanation:

16. With reference to Indian economy, consider the following: 

  1. Bank rate
  2. Open market operations
  3. Public debt
  4. Public Revenue

Which of the above is/are component/components of Monetary Policy?

(a) 1 only

(b) 2, 3 and 4

(c) 1 and 2

(d) 1, 3 and 4

Explanation:

17. If the interest rate is decreased in an economy, it will 

(a) Decrease the consumption expenditure in the economy

(b) Increase the tax collection of the Government

(c) Increase the investment expenditure in the economy

(d) Increase the total savings in the economy

Explanation:

18. The terms \\\’Marginal Standing Facility Rate\\\’ and \\\’Net Demand and Time Liabilities\\\’, sometimes appearing in news, are used in relation to

(a) Banking operations

(b) Communication networking

(c) Military strategies

(d) Supply and demand of agricultural products

Explanation:

19. In the context of Indian economy, which of the following is/are the purpose/purposes of \\\’Statutory Reserve Requirements\\\’?

  1. To enable the Central Bank to control the amount of advances the banks can create
  2. To make the people\\\’s deposits with banks safe and liquid
  3. To prevent the commercial banks from making excessive profits
  4. To force the banks to have sufficient vault-cash to meet their day-to-day requirements

Select the correct answer using the code given below.

(a) 1 only

(b) 1 and 2 only

(c) 2 and 3 only

(d) 1, 2, 3 and 4

Explanation:

20. An increase in the Bank Rate generally indicates that the

(a) Market rate of interest is likely to fall

(b) Central Bank is no longer making loans to commercial banks

(c) Central Bank is following an easy money policy

(d) Central Bank is following a tight money policy

Explanation:

21. The Reserve Bank of India regulates the commercial banks in matters of

  1. Liquidity of assets
  2. Branch expansion
  3. Merger of banks
  4. Winding-up of banks

Select the correct answer using the codes given below:

(a) 1 and 4 only

(b) 2, 3 and 4 only

(c) 1, 2 and 3 only

(d) 1, 2, 3 and 4

Explanation:

22. In the context of Indian economy, \\\’Open Market Operations\\\’ refers to 

(a) Borrowing by scheduled banks from the RBI

(b) Lending by commercial banks to industry and trade

(c) Purchase and sale of government securities by the RBI

(d) None of the above

Explanation:

23. The Reserve Bank of India (RBI) acts as a bankers’ bank. 

This would imply which of the following?

  1. Other banks retain their deposits with the RBI.
  2. The RBI lends funds to the commercial banks in times of need.
  3. The RBI advises the commercial banks on monetary matters.

Select the correct answer using the codes given below:

(a) 2, and 3 only

(b) 1 and 2 only

(c) 1 and 3 only

(d) 1, 2 and 3

Explanation:

24. Which of the following measures would result in an increase in the money supply in the economy? 

  1. Purchase of government securities from the public by the Central Bank
  2. Deposit of currency in commercial banks by the public
  3. Borrowing by the government from the Central Bank
  4. Sale of government securities to the public by the Central Bank

Select the correct answer using the codes given below:

(a) 1 only

(b) 2 and 4 only

(c) 1 and 3

(d) 2, 3 and 4

Explanation:

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