Q. What does the term 'interest rate' refer to in monetary policy?
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A.
The cost of borrowing money
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B.
The price of goods and services
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C.
The value of currency
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D.
The level of government debt
Solution
Interest rate refers to the cost of borrowing money, which is influenced by monetary policy.
Correct Answer:
A
— The cost of borrowing money
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Q. What happens when the central bank raises the reserve requirement?
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A.
Banks can lend more money
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B.
Money supply decreases
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C.
Inflation increases
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D.
Interest rates decrease
Solution
Raising the reserve requirement means banks must hold more reserves, leading to a decrease in the money supply.
Correct Answer:
B
— Money supply decreases
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Q. What is quantitative easing?
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A.
Increasing interest rates
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B.
Buying financial assets to inject money into the economy
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C.
Reducing government spending
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D.
Increasing taxes
Solution
Quantitative easing involves buying financial assets to inject money into the economy, aiming to lower interest rates.
Correct Answer:
B
— Buying financial assets to inject money into the economy
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Q. What is the 'repo rate'?
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A.
The rate at which banks lend to each other
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B.
The rate at which the central bank lends to commercial banks
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C.
The rate of inflation
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D.
The rate of economic growth
Solution
The repo rate is the rate at which the central bank lends money to commercial banks, influencing overall interest rates.
Correct Answer:
B
— The rate at which the central bank lends to commercial banks
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Q. What is the effect of lowering interest rates?
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A.
Decreases consumer spending
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B.
Encourages borrowing and spending
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C.
Increases inflation immediately
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D.
Reduces investment
Solution
Lowering interest rates encourages borrowing and spending, stimulating economic growth.
Correct Answer:
B
— Encourages borrowing and spending
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Q. What is the impact of high inflation on monetary policy?
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A.
Encourages lower interest rates
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B.
Leads to tighter monetary policy
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C.
Results in increased government spending
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D.
Decreases the money supply
Solution
High inflation typically leads to tighter monetary policy, including raising interest rates to control inflation.
Correct Answer:
B
— Leads to tighter monetary policy
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Q. Which institution is primarily responsible for conducting monetary policy in India?
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A.
Ministry of Finance
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B.
Reserve Bank of India
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C.
Securities and Exchange Board of India
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D.
World Bank
Solution
The Reserve Bank of India (RBI) is primarily responsible for conducting monetary policy in India.
Correct Answer:
B
— Reserve Bank of India
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Q. Which of the following is NOT a goal of monetary policy?
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A.
Controlling inflation
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B.
Maximizing employment
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C.
Stabilizing currency
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D.
Increasing government revenue
Solution
Increasing government revenue is not a direct goal of monetary policy; it focuses on inflation, employment, and currency stability.
Correct Answer:
D
— Increasing government revenue
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