RRB Officer Scale-2 & RRB PO FA Classes

@06:00 PMClass 05Monetary Policy & Inflation

TOPICWISE MCQS DISCUSSION

Q.1. When RBI reduces Statutory Liquidity Ratio by 50 basis points,

which of the following is likely to happen?

a. GDP growth rate increases drastically

b. FII may bring more capital

c. Schedule Commercial bank may cut their lending rates

d. Drastically reduce the liquidity to the banking system.

Statutory Liquidity Ratio (SLR)

• under section 24 of Banking Regulation Act, 1949

• max : 40%

• maintain : Daily

• SLR is certain percentage that commercial banks are required to

maintain in the form of cash, gold reserves & G-securities with in

its own bank

Q.2. If Reverse Repo Rate increases by RBI then the money supply

___?

a. Increases

b. Decreases

c. No effect

d. None of these

Reverse Repo Rate :

BANK RBI

Deposit

• RRR is the rate at which banks deposit their money with RBI.

Q.3. Bank Rate is the rate of interest-

a. At which public borrows money from commercial

b. At which commercial bank borrows from RBI

c. At which Central govt borrow from RBI

d. At which Commercial banks borrow from Public

2. Bank Rate :

• A bank rate is the interest rate at which RBI lends money to banks

for long term

• Duration: 91 days to 1 year

• Also known as Rediscount rate or Penal Rate

• Penalty: BR + 3%

• After: BR+5%

RBI BANKS

Q.4. What will be the impact on the Cash Reserve of Commercial

banks if RBI conduct a sale of securities

a. Increases

b. Decreases

c. Remain constant

d. None of these

Q.5 Minimum to Maximum reserve deposits in RBI by Commercial

banks is called-

a. Deposit Reserve

b. Cash Deposit

c. Excess Reserve

d. None of these

Q.6 Under which qualitative tool, RBI fixes maximum limit to loan and

advances that can be made, above which the Commercial banks

cannot exceed?

a. Rationing of Credit

b. Margin of Requirement

c. Loan Value Ratio

d. Moral Suasion

Q.7. Which one of following is not a quantitative credit control

measure of a Central Bank?

a. Bank Rate Policy

b. Open Market Operation

c. Cash Reserve Ratio

d. Moral Suasion

Q.8. Increase in Cash Reserve Ratio leads to-

A. Increase in bank credit

B. Decrease in bank credit

C. Constant

D. None of these

1. Cash Reserve Ratio (CRR)

• under Section 42(I) of RBI Act 1934 • Permissible : 3% an 20%

• CRR is certain percentage of NDTL the commercial banks are

required to maintain in the form of cash reserve with the central

bank.

• Net Demand & Time Liability

Q.9. How many members in Monetary Policy committee?

a. 4

b. 5

c. 6

d. 7

Q.10. If the Central bank wants to encourage an increase in the supply

of money and decrease in the cost of borrowing money, it should

a. Raise Discount rates

b. Lower CRR

c. Sell Government securities

d. None of these

Q.11. . What is the full form of LAF

a. Liquidity Adjustment Facility

b. Lending Adjustment Facility

c. Liquidity Associate Fund

d. Lending Amount Fund

Q.12. ‘Interest Rate Policy’ is a component of-

a. Fiscal Policy

b. Monetary Policy

c. Balance of Payment

d. Trade Policy

Q.13. RBI adopted bi-monthly monetary policy on the

recommendation of

a. Bimal Jalan committee

b. Urjit Patel committee

c. Usha Thorat committee

d. Rangarajan committee

Monetary Policy:

Monetary policy consists of management of money supply and interest

rates, aimed at achieving macroeconomic objectives such as

controlling inflation, consumption, growth, and liquidity

• By RBI

Monetary Policy Committee

• Recommendation of Urjit Patel Committee

• Sec 2(iii) of (cci) of RBI Act, 1934

• Total 6 members

3 appointed by RBI

3 by GoI

Q.14. What is stagflation?

a. When there is inflation in the economy.

b. When there is Recession & unemployment altogether

c. When there is Inflation & unemployment altogether

d. When there is unemployment

Stagflation :

Inflation + Recession/ Unemployment + Decreasing growth rate/

Depression

Q.15. Inflation occurs when aggregate supply is______

a. More than aggregate demand

b. Less than aggregate demand

c. Equal to aggregate demand

d. None of these

Q.16. Inflation is defines as a situation in which the value of money

____.

a. Increases

b. Decreases

c. First increases then decreases

d. No effect

Q.17. Which group constitutes maximum weightage in WPI?

a. Primary article

b. Manufactured items

c. Fuel

d. Equal weightage

Q.19. What is the base year of Wholesale Price Index?

a. 2001-02

b. 2007-08

c. 2011-12

d. 2017-18

Measurement :

1. Wholesale Price Index (WPI)

Current Year Price – Base Year Price / Base year Price * 100

Base Year = 2011-12

Basket of Commodities = 697

Q.20. Deflation is a situation in which

a. The value of money is falling

b. The price of goods is increasing

c. The value of money is increasing

d. The price level is stagnant

Q.21. Which of the following released WPI?

a. Department of Industrial Policy & Promotion

b. Labour Bureau

c. Ministry of Finance

d. Central Statistics Office

Q.22 Purchasing power of money falls when

a. Income falls

b. Price level rises

c. Price level falls

d. Both b & c

Q.23 Consumer Price Index records the prices of:

a. Only Goods

b. Only Services

c. Both Goods & Services

d. None of the above

Consumer Price Index (CPI) :

Inflation measure on this

After recommendation of Deepak Mohanty committee

since 2012

CYP – BYP/ BYP * 100

Base Year = 2011- 12

Q.25 A rise in general level of price may be caused by

1. An increase in the money supply

2. A decrease in the aggregate level of output

3. An increase in the effective demand

a. 1 only b. 1 and 2 only

c. 1, 2 and 3 d. 1 and 3 only

Q.26 Which reference to India, which of the following statement is

correct?

a. Controlling the inflation in India is the responsibility of the

Government of India only

b. The RBI has no role in controlling the inflation

c. Decreased money circulation helps in controlling the inflation.

d. Increased money circulation helps in controlling the inflation

Q.27 How inflation affects the price of the commodities?

a. Price of the commodities increases

b. Price of the commodities decreases

c. Increases and decreases both

d. No effect

Q.28 Which of the following measures can be used for curbing

inflation?

a. Monetary measure by Central government

b. Fiscal measure by RBI

c. Monetary Policy by RBI

d. None of these

Q.29 Which type of inflation develops when supply cost increase, we

call that

a. Cost-push inflation

b. Demand-pull inflation

c. Sectoral inflation

d. Skewflation

Q.30 When too much money chases too few goods, the resulting

inflation is called:

a. Demand- pull inflation

b. Cost- push inflation

c. Skewflation

d. Stagflation

Types or cause of Inflation :

1. Demand –Pull Inflation:

Demand-pull inflation occurs when the overall demand for goods and

services in an economy increases more rapidly than the economy's

production capacity. It creates a demand-supply gap with higher

demand and lower supply, which results in higher prices

2. Cost Push Inflation/ Supply shock inflation:

Cost-push inflation is a result of the increase in the prices of production

process inputs

3. Sectoral Inflation/ Pricing power Inflation:

Sectoral Inflation refers to the rise in prices occurring in different

commercial sectors

4. Skewflation :

in 2011

Inflation in some sectors but deflation in other sectors

Q.31 During period of inflation, tax rate should:

a. Increases

b. Decreases

c. Remain constant

d. Fluctuate

Q.32 Which of the following is known as Headline inflation?

a. WPI

b. CPI

c. IIP

d. None of these

Q.33 The main objective of Monetary Policy in India is:

a. Only Monetary Stability

b. Reduce Poverty

c. Growth with stability

d. None of these

Q.34. Who is the regulator of Monetary Policy?

a. SEBI

b. RBI

c. Central Govt

d. State Govt

Q.35 An increase in Bank rate generally indicates that the ___

a. Central Bank is no longer making loans to Commercial Bank

b. Central Bank is following an easy money policy

c. Central Bank is following a tight money policy

d. None of these

Q.36 In context of Indian Economy, OMO refers to

a. Borrowing by Schedule banks from RBI

b. Sale & Purchase of Govt Securities

c. Lending by CB to industry

d. None of these

Stage of Inflation :

1. Creeping Inflation : 0- 3% (0-2%)

2. Trotting Inflation (Walking + Running ) : 3%- 10% (2-5%)

3. Galloping Inflation : 10% -20% (5-10%)

4. Hyper Inflation : above 20% (Above 10%)

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