Tag: instruments of monetary policy and the reserve bank of india

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Questions Related to instruments of monetary policy and the reserve bank of india

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

RBI can decrease demand for bank credit by __________.

  1. lowering the bank rate

  2. increasing the bank rate

  3. maintaining the bank rate at the same level

  4. all of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

By increasing the bank rate, the RBI increases the cost of borrowing for commercial banks. This leads to higher lending rates for customers, which reduces the demand for bank credit.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Narrow money refers (as per latest RBI Working Group):

  1. Currency + Demand Deposits + other Deposits with RBI

  2. Currency + Demand Deposits + Post office saving deposits

  3. Currency + Demand Deposits + Money at call

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to the RBI's definition, Narrow Money (M1) is defined as Currency with the public plus Demand Deposits with banks plus 'Other' deposits with the RBI.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Which of the following statements is correct?

  1. The RBI is just like any ordinary commercial bank in India.

  2. The RBI is responsible for the overall monetary policy in India.

  3. Selective credit control measures affect all banks in a similar manner.

  4. A high rate of interest encourages new investment.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This statement is correct that the RBI is responsible for the overall monetary policy in India. Others are wrong because the RBI is not just like any ordinary commercial bank in India, selective credit control measures affect all banks in a selective manner and A high rate of interest discourages new investment.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Raising or lowering of the central bank credit rate is known as __________.

  1. open market operation

  2. cash reserve ratio

  3. bank rate policy

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Bank Rate is the rate at which the central bank lends money to commercial banks. Adjusting this rate is a fundamental tool of monetary policy known as bank rate policy.

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Policy measures by the RBI to control and regulate money supply is called __________.

  1. monetary policy

  2. credit policy

  3. debit policy

  4. loan policy
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

 Monetary policy refers to various central bank policies which includes both qualitative as well as quantitative measures that regulates various factors that influence domestic currency directly or indirectly like money supply, interest rates and credit availability in the economy. These measures control the rate of money supply in case inflation or deflation. 

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Buying and selling of eligible securities in the bill market by the RBI is called __________.

  1. CRR

  2. SLR

  3. OMO

  4. Bank Rate
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Open market operation (OMO) is a monetary policy by the central bank in which the bank deals in the sale and purchase of securities in the open market to control the supply of money in the economy. By selling the securities, the central bank soaks liquidity from the economy and by buying the securities, the central bank releases liquidity. 

Multiple choice instruments of monetary policy and the reserve bank of india money and banking economics

Manipulation in CRR enables the RBI to ______.

  1. Influence the lending ability of the commercial banks

  2. Check unemployment growth

  3. Check poverty

  4. Increase GDP
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Cash Reserves Ratio (CRR) refers to the proportion of total deposits of the commercial banks which they must keep as reserves with the central bank in the form of cash. If the cash reserve ratio is high, then the bank will have to maintain more amount of cash with the central bank which will reduce their lending capacity and if the cash reserve ratio is low, then the bank will have to maintain less amount of cash with the central bank which will increase their lending capacity. Therefore, Manipulation in cash reserve ratio enables the Reserve Bank of India(RBI) to affect the lending capacity of the commercial banks.