Money and Banking (part – II)

Total Questions: 268

41. The Reserve Bank of India (RBI) acts as a banker's bank. This would imply which of the following? [U.P.S.C (Pre) 2012]

  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 code given below :

Correct Answer: (d) 1,, 2 and 3
Solution:The Reserve Bank of India (RBI) is the Central Bank of India whose primary function is to manage and govern the financial system of the country. It is a statutory body established in the your 1935 under the Reserve Bank of India Act, 1934. The Central Bank regulates the issue and supply of the Indian rupee. It also looks after the Central Government's money.

The Central Bank plays the role of the banker's bank and regulates the banking sector. It advises the commercial banks on monetary matters. In times of need, the RBI lends funds to the commercial banks and commercial banks retain their It also plays an important role in India's deposits with the RBI development story by supporting the government in its  developmental projects and policies.

42. Which of the following Banks is the Central Bank of India? [M.P.P.C.S. (Pre) 2012]

Correct Answer: (d) Reserve Bank of India
Solution:The Reserve Bank of India (RBI) is the Central Bank of India whose primary function is to manage and govern the financial system of the country. It is a statutory body established in the your 1935 under the Reserve Bank of India Act, 1934. The Central Bank regulates the issue and supply of the Indian rupee. It also looks after the Central Government's money.

The Central Bank plays the role of the banker's bank and regulates the banking sector. It advises the commercial banks on monetary matters. In times of need, the RBI lends funds to the commercial banks and commercial banks retain their It also plays an important role in India's deposits with the RBI development story by supporting the government in its  developmental projects and policies.

43. Monetary Policy is : [U.P.R.O./A.R.O. (Mains) 2016]

Correct Answer: (b) Complementary to fiscal policy
Solution:Monetary policy is complementary to fiscal policy. They are interrelated and have to be judiciously combined to promote and stabilize the economic activity. Monetary policy influences the aggregate demand, and, in turn, output, income and employment, indirectly by regulating the flow of credit and money supply while fiscal policy has direct, through lagged, impact on aggregate demand. Monetary Policy is more effective during inflation, while fiscal policy is more effective during deflation.

44. Which one of the following is not an objective of Monetary Policy ? [U.P.P.C.S. (Mains) 2011]

Correct Answer: (c) Equitable Distribution of Income and Assets
Solution:Equitable distribution of income and assets is not an objective of monetary policy. Rest three are the objectives of monetary policy.

Monetary policy refers to the measures and actions implemented by an RBI to regulate the supply of money, interest rates, and credit in the economy. It aims to achieve various macroeconomic objectives such as price stability, employment generation and sustainable economic growth.

It is the policy under which RBI uses monetary instruments (interest rate and other instruments) under the RBI Act, 1934, to influence money supply in the economy to achieve certain macroeconomic goals.

Classification of Monetary Policy

  • Expansionary Monetary Policy: Increases money supply in the economy.
    Low interest rates (RBI reduces repo rate/ bank rate/ SLR/ Marginal Standing Facility Rate leaving more liquidity with banks)
    Increases demand
  • Contractionary Monetary Policy: Decreases money supply
    Increase in Interest rates
    Decreases demand

45. Who formulates the monetary policy in India ? [U.P.P.C.S. (Pre) 2006, R.A.S./R.T.S. (Pre) 2010]

Correct Answer: (b) RBI
Solution:The monetary policy in India was earlier (till 2016) formulated by the Reserve Bank of India. At present, the Monetary Policy Committee (MPC) constituted by the Central Government determines the policy interest rate required to achieve the inflation target.

RBI's Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy. The RBI is vested with the responsibility of conducting monetary policy which is explicitly mandated under the RBI Act, 1934. - The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.

46. In India, which one of the following is responsible for maintaining price stability by controlling inflation ? [U.P.S.C (Pre) 2022]

Correct Answer: (d) Reserve Bank of India
Solution:The monetary policy in India was earlier (till 2016) formulated by the Reserve Bank of India. At present, the Monetary Policy Committee (MPC) constituted by the Central Government determines the policy interest rate required to achieve the inflation target.

RBI's Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy. The RBI is vested with the responsibility of conducting monetary policy which is explicitly mandated under the RBI Act, 1934. - The primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.

47. Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC)? [U.P.S.C (Pre) 2017]

1. It decides the RBI's benchmark interest rates.

2. It is a 12-member body including the Government 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 :

Correct Answer: (a) 1 only
Solution:The Monetary Policy Committee (MPC) is responsible for fixing the RBI's benchmark interest rates. The MPC comprises six member - three officials of the RBI including the Governor of RBI and three external member nominated by the Government of India. External members will hold office for a period of four years from the date of appointment while other three members are official. The Governor of RBI is the ex-officio chairperson of the Committee. Therefore among the given statements, only statement 1 is correct.

48. In India 'Money and Credit' is controlled by the : [U.P.P.C.S. (Mains) 2010]

Correct Answer: (c) Reserve bank of India
Solution:In India, 'Money and Credit' is controlled by the Reserve Bank of India (RBI). For this, the RBI uses qualitative and quantitative measures.

The Reserve Bank of India plays a vital role in maintaining economic stability. Some key impacts include:

  • Inflation Control: RBI adjusts interest rates to keep inflation in check.
  • Economic Growth: It supports industries, startups, and small businesses through lending policies.
  • Banking Sector Stability: Ensures safe banking operations and deposit protection.
  • Financial Reforms: Implement policies to modernize banking and promote digital transactions.

49. Which one of the following is not an instrument of selective credit control in India ? [U.P.S.C (Pre) 1995]

Correct Answer: (d) Variable reserve ratios
Solution:Among the given options, the first three are the instruments of selective credit control or qualitative credit control measures of the RBI, while last one is an instrument of quantitative credit control measures of the RBI.

Instruments of Monetary Policy Measures of RBI

Quantitative Credit Control Measures Selective/ Qualitative Credit Control Measures 
1. Bank Rate1. Loan regulations by Fixation of Margin Requirements
2. Open Market Operations2. Consumer Credit Regulations
3. Repo Rate3. Issue of Directives
4. Reverse Repo Rate4. Rationing of Credit
5. Marginal Standing Facility5. Moral Suasion and Publicity
6. Variable Cash Reserve Ratios (CRR and SLR)6. Direct Action

50. Which of the following is not a measure of selective credit control ? [Raj. P.C.S. (Pre) 2023]

Correct Answer: (b) Sale of government securities
Solution:Among the given options, the first three are the instruments of selective credit control or qualitative credit control measures of the RBI, while last one is an instrument of quantitative credit control measures of the RBI.

Instruments of Monetary Policy Measures of RBI

Quantitative Credit Control Measures Selective/ Qualitative Credit Control Measures 
1. Bank Rate1. Loan regulations by Fixation of Margin Requirements
2. Open Market Operations2. Consumer Credit Regulations
3. Repo Rate3. Issue of Directives
4. Reverse Repo Rate4. Rationing of Credit
5. Marginal Standing Facility5. Moral Suasion and Publicity
6. Variable Cash Reserve Ratios (CRR and SLR)6. Direct Action