MONEY AND BANKING (Part – I)

Reducing the rate of interest is a measure of expansionary monetary policy and it is not a method to control inflation. Inflation can be controlled by a contractionary monetary policy which is a common method of managing inflation. The aim of contractionary policy is to reduce the supply of money within the economy by lowering the prices of bonds and rising the interest rates. Thus consumption falls, prices fall and inflation slows down. Measures to control inflation are as follows:

1. Monetary Measures:

• Increasing the rate of interest
• Credit control
• Controlling the money supply
• Demonetization of currency

2. Fiscal Measures:

• Reduction in unnecessary expenditure
• Increase in Taxes
• Increase in Saving
• Surplus Budget
• Public Budget

3. Other Measures

• To increase production
• Rational wage Policy
• Price control
• Rationing
• Controlling the demand

Increasing the money supply faster than the growth in real output will cause inflation. The reason is that there is more money chasing the same number of goods. Therefore, the increase in monetary demand causes firms to put up prices. In this situation, the RBI through monetary policy tries to reduce the expansion of money because decreased money circulation (liquidity) helps in controlling the inflation.

During the preceding five years of the question period the area under the cultivation of food grains had not steadily decreased. Hence, statement 1 is incorrect . Statement 2 and 3 are correct.

As per the question period, both assertion (A) and reason (R) were correct and reason (R) was the correct explanation of assertion (A).

Oudh Commercial Bank was an Indian bank established in 1881 in Faizabad and operated until 1958 when it failed. It was the first commercial bank in India having limited liability and an entirely Indian board of directors. India's first Swadeshi bank is Punjab National Bank, which was founded in 1894 and commenced its operation on April 12, 1895 from Lahore, Pakistan.

All of the above can be considered as steps taken to achieve the 'financial inclusion' in India. Nationalization targeted the expansion of bank branches in rural areas and also a control on concentration of economic powers in the few hands. RRBs and Lead Bank Scheme were planned to cater the needs of the rural areas.

Life insurance companies were nationalized in 1956 and general insurance companies were nationalized in 1972. While State Bank of India was nationalized in July 1955 and Banking Regulation Act came into force on 10 March, 1949. The first Five Year Plan was commenced in 1951. Hence, option (c) is the correct answer.

On July 19,1969, the Government of India had nationalized 14 major private commercial banks, whose assets size was above Rs. 50 crore. Again on 15 April 1980, another six major private commercial banks were nationalized by the Government of India.

On July 19,1969, the Government of India had nationalized 14 major private commercial banks, whose assets size was above Rs. 50 crore. Again on 15 April 1980, another six major private commercial banks were nationalized by the Government of India.

The chronological order of the given events is as follows:

First phase of Bank Nationalization - 1969

Establishment of Regional Rural Banks - 1975

Second phase of Bank Nationalization - 1980

Establishment of NABARD - 1982

Hence, option (a) is the correct answer.