Monetary Policy PYQs — 29 UPSC CSE Previous Year Questions

Question 1

Consider the following statements in respect of the digital rupee : It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy. It appears as a liability on the RBI's balance sheet. It is insured against inflation by its very design. It is freely convertible against commercial bank money and cash. Which of the statements given above are correct ?

Accepted Answer

D. 1, 2 and 4

Question 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?

Accepted Answer

A. Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

Question 3

With reference to Central Bank digital currencies, consider the following statements : It is possible to make payments in a digital currency without using US dollar or SWIFT system. A digital currency can be distributed with a condition programmed into it such as a timeframe for spending it. Which of the statements given above is/are correct?

Accepted Answer

C. Both 1 and 2

Question 4

Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?

Accepted Answer

A. Conducting 'Open Market Operations'

Question 5

With reference to the Indian economy, consider the following statements : If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars. Which of the statements given above are correct ?

Accepted Answer

B. 2 and 3 only

Question 6

In India, which one of the following is responsible for maintaining price stability by controlling inflation ?

Accepted Answer

D. Reserve Bank of India

Question 7

Indian Government Bond Yields are influenced by which of the following? Actions of the United States Federal Reserve Actions of the Reserve Bank of India Inflation and short-term interest rates Select the correct answer using the code given below.

Accepted Answer

D. 1, 2 and 3

Question 8

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

Accepted Answer

C. Increase in the banking habit of the people

Question 9

If you withdraw ₹1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be:

Accepted Answer

D. to leave it unchanged

Question 10

If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?

Cut and optimize the Statutory Liquidity Ratio
Increase the Marginal Standing Facility Rate
Cut the Bank Rate and Repo Rate

Select the correct answer using the code given below:

Accepted Answer

B. 2 only

Question 11

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

Accepted Answer

B. Increase in the banking habit of the population

Question 12

Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

Accepted Answer

D. Following an expansionary monetary policy

Question 13

Which one of the following statements correctly describes the meaning of legal tender money ?

Accepted Answer

B. The money which a creditor is under compulsion to accept in settlement of his claims

Question 14

Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC) ? It decides the RBI's benchmark interest rates. It is a 12-member body including the Governor of RBI and is reconstituted every year. It functions under the chairmanship of the Union Finance Minister. Select the correct answer using the code given below :

Accepted Answer

A. 1 only

Question 15

What is/are the purpose/purposes of the 'Marginal Cost of Funds based Lending Rate (MCLR)' announced by RBI? These guidelines help improve the transparency in the methodology followed by banks for determining the interest rates on advances. These guidelines help ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks. Select the correct answer using the code given below.

Accepted Answer

C. Both 1 and 2

Question 16

With reference to Indian economy, consider the following : Bank rate Open market operations Public debt Public revenue Which of the above is/are component/components of Monetary Policy?

Accepted Answer

C. 1 and 2

Question 17

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

Accepted Answer

C. Scheduled Commercial Banks may cut their lending rates

Question 18

In the context of Indian economy, which of the following is/are the purpose/purposes of 'Statutory Reserve Requirements'? To enable the Central Bank to control the amount of advances the banks can create To make the people's deposits with banks safe and liquid To prevent the commercial banks from making excessive profits 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.

Accepted Answer

A. 1 only

Question 19

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

Accepted Answer

C. increase the investment expenditure in the economy

Question 20

Consider the following liquid assets: Demand deposits with the banks Time deposits with the banks Savings deposits with the banks Currency The correct sequence of these assets in the decreasing order of liquidity is

Accepted Answer

D. 4-1-3-2

Question 21

In the context of Indian economy, 'Open Market Operations' refers to

Accepted Answer

C. purchase and sale of government securities by the RBI

Question 22

An increase in the Bank Rate generally indicates that the

Accepted Answer

D. Central Bank is following a tight money policy

Question 23

Which of the following measures would result in an increase in the money supply in the economy? Purchase of government securities from the public by the Central Bank Deposit of currency in commercial banks by the public Borrowing by the government from the Central Bank Sale of government securities to the public by the Central Bank Select the correct answer using the codes given below:

Accepted Answer

C. 1 and 3

Question 24

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

Accepted Answer

A. More liquidity in the market

Question 25

Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government?

Accepted Answer

D. Statutory Liquidity Ratio

Question 26

When the Reserve Bank of India announces an increase of the Cash Reserve Rate, what does it mean?

Accepted Answer

A. The commercial banks will have less money to lend

Question 27

Consider the following statements:

The repo rate is the rate at which other banks borrow from the Reserve Bank of India.
A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population.

Which of the statements given above is/are correct?

Accepted Answer

A. 1 only

Question 28

Consider the following: Currency with the public Demand deposits with banks Time deposits with banks Which of these are included in Broad Money (M3) in India?

Accepted Answer

D. 1, 2 & 3

Question 29

The sum of which of the following constitutes Broad Money in India?

Currency with the public
Demand deposits with banks
Time deposits with banks
Other deposits with RBI

Choose the correct answer using the codes given below:

Accepted Answer

C. 1, 2, 3 & 4