{"id":3290,"date":"2024-01-24T11:11:11","date_gmt":"2024-01-24T05:41:11","guid":{"rendered":"https:\/\/learnupboard.com\/?p=3290"},"modified":"2024-01-24T11:11:11","modified_gmt":"2024-01-24T05:41:11","slug":"ca-foundation-economics-monetary-policy-in-india-mcqs","status":"publish","type":"post","link":"https:\/\/learnupboard.com\/ca-foundation-economics-monetary-policy-in-india-mcqs\/","title":{"rendered":"CA Foundation Economics – Monetary Policy in India Multiple Choice Questions"},"content":{"rendered":"
Question 1. Monetary policy in India is formulated and regulated by<\/strong><\/p>\n Answer:<\/strong> 3. The Reserve Bank of India (RBI).<\/p>\n Explanation:<\/strong><\/p>\n Monetary policy in India is formulated and regulated by the Reserve Bank of India (RBI). The RBI is the central banking institution of India and is responsible for formulating and implementing monetary policy to control the money supply and achieve price stability and economic growth.<\/p>\n Question 2. The primary objective of monetary policy in India is to<\/strong><\/p>\n Answer:<\/strong> 3. Control the money supply and inflation.<\/p>\n Explanation:<\/strong><\/p>\n The primary objective of monetary policy in India, as set by the Reserve Bank of India (RBI), is to control the money supply in the economy and manage inflation. By influencing the money supply, the RBI aims to achieve price stability and foster sustainable economic growth.<\/p>\n Question 3. Which of the following is an example of an expansionary monetary policy measure that the RBI may adopt in India?<\/strong><\/p>\n Answer:<\/strong> 2. Decreasing the Cash Reserve Ratio (CRR).<\/p>\n Explanation:<\/strong><\/p>\n An expansionary monetary policy aims to increase the money supply in the economy to stimulate economic growth. Decreasing the Cash Reserve Ratio (CRR) is an example of an expansionary measure, as it allows commercial banks to lend out more money and increases liquidity in the financial system.<\/p>\n Question 4. Contractionary monetary policy measures are designed to<\/strong><\/p>\n Answer:<\/strong> 2. Decrease the money supply and control inflation.<\/p>\n Explanation:<\/strong><\/p>\n Contractionary monetary policy measures are designed to decrease the money supply in the economy to control inflation and prevent overheating. The RBI may implement measures such as raising the Repo Rate, increasing the Cash Reserve Ratio (CRR), or conducting open market operations to reduce excess liquidity and curb inflation.<\/p>\n Question 5. The primary transmission mechanism through which monetary policy affects the economy in India is<\/strong><\/p>\n Answer:<\/strong> 4. The credit and interest rate channels.<\/p>\n Explanation:<\/strong><\/p>\n The primary transmission mechanism through which monetary policy affects the economy in India is the credit and interest rate channels. Changes in monetary policy instruments, such as the Repo Rate, influence borrowing and lending rates, credit availability, and investment decisions, thereby impacting overall economic activity.<\/p>\n Question 6. Monetary policy is the. the process by which the Central Bank of India controls the<\/strong><\/p>\n Answer:<\/strong> 2. Money supply and interest rates in the economy.<\/p>\n Explanation:<\/strong><\/p>\n Monetary policy is the process by which the Central Bank of India, which is the Reserve Bank of India (RBI), controls the money supply and interest rates in the economy. It uses various monetary policy tools to influence economic activity, inflation, and growth.<\/p>\n Question 7. Which of the following is a primary objective of monetary policy in India?<\/strong><\/p>\n Answer:<\/strong> 3. Achieving price stability and controlling inflation.<\/p>\n Explanation:<\/strong><\/p>\n A primary objective of monetary policy in India is to achieve price stability and control inflation. The RBI aims to keep inflation at a moderate level to maintain purchasing power of the currency and ensure stable economic conditions.<\/p>\n Question 8. The Reserve Bank of India (RBI) uses various monetary policy tools to implement its policies. One such tool is the “Cash Reserve Ratio (CRR).” What does CRR represent?<\/strong><\/p>\n Answer:<\/strong> 3. The percentage of total deposits that banks must keep as reserves with the RBI.<\/p>\n Explanation:<\/strong><\/p>\n The Cash Reserve Ratio (CRR) represents the percentage of total deposits that commercial banks must keep as reserves with the Reserve Bank of India (RBI). It is a tool used by the RBI to control the money supply in the economy.<\/p>\n Question 9. When the Reserve Bank of India (RBI) wants to increase the money supply in the economy, it is likely to<\/strong><\/p>\n Answer:<\/strong> 2. Lower the Repo Rate.<\/p>\n Explanation:<\/strong><\/p>\n When the RBI wants to increase the money supply in the economy, it is likely to lower the Repo Rate. The Repo Rate is the rate at which commercial banks can borrow funds from the RBI, and a lower Repo Rate encourages banks to borrow more, leading to increased lending, and money creation.<\/p>\n Question 10. What is the primary challenge faced by the central bank in implementing monetary policy in India?<\/strong><\/p>\n Answer:<\/strong> 2. Lack of coordination with the government’s fiscal policy.<\/p>\n Explanation:<\/strong><\/p>\n The primary challenge faced by the central bank in implementing monetary policy in India is the lack of coordination with the government’s fiscal policy. Effective monetary policy requires coordination with fiscal policy to achieve common economic objectives.<\/p>\n Question 11. Monetary policy is a tool used by the central bank to<\/strong><\/p>\n Answer:\u00a0<\/strong> 2. Control inflation and stabilize the economy<\/p>\n Question 12. Which of the following is an example of an expansionary monetary policy?<\/strong><\/p>\n Answer:<\/strong> 3. Decreasing the discount rate<\/p>\n Question 13. Contractionary monetary policy aims to<\/strong><\/p>\n Answer:<\/strong> 3. Reduce inflation and cool down an overheated economy<\/p>\n Question 14. The interest rate at which the central bank lends to commercial banks is known as<\/strong><\/p>\n Answer:<\/strong> 1. The discount rate<\/p>\n Question 15. When the central bank buys government bonds from the market, it<\/strong><\/p>\n Answer:<\/strong> 1. Increases the money supply .<\/p>\n Question 1. Monetary policy in India refers to the<\/strong><\/p>\n Answer:<\/strong> 3. Central bank’s control over the money supply and interest rates in the economy.<\/p>\n Explanation:<\/strong><\/p>\n Monetary policy in India refers to the control exercised by the central bank, which is the Reserve Bank of India (RBI), over the money supply and interest rates in the economy. It aims to achieve specific economic objectives such as price stability, economic growth, and employment.<\/p>\n Question 2. The main goal of monetary policy in India is to<\/strong><\/p>\n Answer:<\/strong> 3. Control the money supply and maintain price stability.<\/p>\n Explanation:<\/strong><\/p>\n The main goal of monetary policy in India is to control the money supply in the economy and maintain price stability. The Reserve Bank of India (RBI) uses various monetary policy tools to influence interest rates and credit availability to achieve this objective.<\/p>\n Question 3. Which of the following monetary policy tools can be used by the Reserve Bank of India (RBI) to reduce the money supply in the economy?<\/strong><\/p>\n Answer:<\/strong> 3. Conducting open market purchases of government securities.<\/p>\n Explanation:<\/strong><\/p>\n To reduce the money supply in the economy, the Reserve Bank of India (RBI) can conduct open market purchases of government securities. When the RBI buys government securities from the market, it removes money from circulation and decreases the money supply.<\/p>\n Question 4. When the Reserve Bank of India (RBI) aims to stimulate economic growth and increase the money supply, it is likely to<\/strong><\/p>\n Answer:<\/strong> 3. Conduct open market sales of government securities.<\/p>\n Explanation:<\/strong><\/p>\n When the RBI aims to stimulate economic growth and increase the money, supply, it can conduct open-market sales of government securities. By selling government securities to the market, the RBI injects money into the economy and increases the money supply.<\/p>\n Question 5. The term “Monetary Policy Transmission Mechanism” refers to<\/strong><\/p>\n Answer:<\/strong> 2. The channels through which monetary policy affects the economy.<\/p>\n Explanation:<\/strong><\/p>\n The term “Monetary Policy-Transmission Mechanism” refers to the channels through which monetary policy affects the economy. It explains how changes in monetary policy instruments, such as interest rates and money supply, influence economic variables like consumption, investment, and inflation.<\/p>\n Question 6. Monetary policy in India refers to the process by which the Reserve Bank of India (RBI) controls<\/strong><\/p>\n Answer:<\/strong> 3. The money supply and interest rates in the economy. .<\/p>\n Explanation:<\/strong><\/p>\n Monetary policy in India refers to the process by which the Reserve Bank of India (RBI) controls the money supply and interest rates in. the economy. The RBI uses various monetary policy tools to influence economic activity, inflation, and growth.<\/p>\n Question 7. The primary objective of monetary policy in India is to achieve<\/strong><\/p>\n Answer:<\/strong> 2. Price stability and control inflation.<\/p>\n Explanation:<\/strong><\/p>\n The primary objective of monetary policy in India is to achieve price stability and control inflation. The Reserve Bank of India (RBI) aims to keep inflation at a moderate level to maintain the purchasing power of the currency and ensure stable economic conditions.<\/p>\n Question 8. Which of the following is true regarding the formulation of monetary policy in India?<\/strong><\/p>\n Answer:<\/strong> 3. The Reserve Bank of India (RBI) formulates and implements monetary policy independently.<\/p>\n Explanation:<\/strong><\/p>\n In India, the Reserve Bank of India (RBI) is responsible for formulating and implementing monetary policy independently. The RBI’s Monetary Policy Committee (MPC) makes decisions regarding interest rates and other monetary policy measures.<\/p>\n Question 9. When the Reserve Bank of India (RBI) wants to reduce the money supply and control inflation, it is likely to<\/strong><\/p>\n Answer:<\/strong> 2. Raise the Repo Rate.<\/p>\n Explanation:<\/strong><\/p>\n When the RBI wants to reduce the money supply and control inflation, it is likely to raise the Repo Rate. The Repo Rate is the rate at which commercial banks can borrow funds from the RBI, and by increasing this rate, the RBI discourages borrowing and spending, leading to a reduction in the money supply.<\/p>\n Question 10. The role of the Monetary Policy Committee (MPC) in India is to<\/strong><\/p>\n Answer:<\/strong> 3. Set interest rates and make decisions related to monetary policy.<\/p>\n Explanation:<\/strong><\/p>\n The role of the Monetary Policy Committee (MPC) in India is to set interest rates and make decisions related to monetary policy. The MPC is responsible for determining the Repo Rate and other key policy rates to achieve the objectives of monetary policy.<\/p>\n Question 11. Monetary policy is a macroeconomic policy that is primarily concerned with<\/strong><\/p>\n Answer:<\/strong> 3. Controlling the money supply and interest rates<\/p>\n Question 12. The main objective of monetary policy is to<\/strong><\/p>\n Answer:<\/strong> 3.\u00a0 Promote economic growth and employment<\/p>\n Question 13. In a contractionary monetary policy, the central bank takes action to<\/strong><\/p>\n Answer:<\/strong> 3.\u00a0 Decrease the money supply and raise interest rates<\/p>\n Question 14. The Federal Reserve in the United States and the European Central Bank are examples of<\/strong><\/p>\n Answer:<\/strong> 4. Central banks responsible for monetary policy<\/p>\n Question 15. Which of the following is not a monetary policy tool used by central banks?<\/strong><\/p>\n Answer:<\/strong> 3. Government bonds issuance<\/p>\n Question 1. The Monetary Policy Framework in India is governed by<\/strong><\/p>\n Answer:<\/strong> 3. The Reserve Bank of India (RBI).<\/p>\n Explanation:<\/strong><\/p>\n The Monetary Policy Framework in India is governed by the Reserve Bank of India (RBI). The RBI is responsible for formulating and implementing monetary policy in the country.<\/p>\n Question 2. The Monetary Policy Framework in India was transitioned from a fixed exchange rate system to a flexible exchange rate system in the year<\/strong><\/p>\n Answer:<\/strong> 3. 1991.<\/p>\n Explanation:<\/strong><\/p>\n The Monetary Policy Framework in India was transitioned from a fixed exchange rate system to a flexible exchange rate system in the year 1991. This move was part of the economic reforms initiated in India to liberalize the economy.<\/p>\n Question 3. The Monetary Policy Committee (MPC) in India consists of members from<\/strong><\/p>\n Answer:<\/strong> 3. Academia, the RBI, and the government.<\/p>\n Explanation:<\/strong><\/p>\n The Monetary Policy Committee (MPC) in India consists of six members, with three members from the RBI (including the RBI Governor) and three external members. The external members are experts from academia, chosen by the central government in consultation with the RBI.<\/p>\n Question 4. The primary objective of the Monetary Policy Framework in India is to achieve<\/strong><\/p>\n Answer:<\/strong> 3. Price stability and controlled inflation.<\/p>\n Explanation:<\/strong><\/p>\n The primary objective of the Monetary Policy Framework in India is to achieve price stability and controlled inflation. The Reserve Bank of India (RBI) aims to keep inflation at a moderate level to maintain the purchasing power of the currency and ensure stable economic conditions.<\/p>\n Question 5. The “Liquidity Adjustment Facility (LAF)” is a significant instrument used in the Monetary Policy Framework in India. What does LAF primarily aim to do?<\/strong><\/p>\n\n
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Monetary Policy Defined<\/h2>\n
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The Monetary Policy Framework<\/h2>\n
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