Q. What does the repo rate signify?
A.
Rate at which banks borrow from the RBI
B.
Rate at which banks lend to customers
C.
Rate of inflation
D.
Rate of economic growth
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Solution
The repo rate is the rate at which banks borrow money from the RBI, influencing the overall money supply.
Correct Answer:
A
— Rate at which banks borrow from the RBI
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Q. What does the term 'monetary transmission mechanism' refer to?
A.
The process by which monetary policy decisions affect the economy
B.
The method of issuing currency
C.
The regulation of foreign exchange
D.
The collection of taxes
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Solution
The monetary transmission mechanism refers to the process through which changes in monetary policy affect the economy, particularly interest rates and investment.
Correct Answer:
A
— The process by which monetary policy decisions affect the economy
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Q. Which of the following instruments is used for liquidity adjustment in the banking system?
A.
Statutory Liquidity Ratio (SLR)
B.
Bank Rate
C.
Reverse Repo Rate
D.
Income Tax
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Solution
The Reverse Repo Rate is used for liquidity adjustment by allowing banks to park their excess funds with the RBI.
Correct Answer:
C
— Reverse Repo Rate
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Q. Which of the following is a contractionary monetary policy tool?
A.
Lowering the repo rate
B.
Increasing the Cash Reserve Ratio
C.
Decreasing the reverse repo rate
D.
Buying government securities
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Solution
Increasing the Cash Reserve Ratio (CRR) is a contractionary tool as it reduces the amount of funds available for banks to lend.
Correct Answer:
B
— Increasing the Cash Reserve Ratio
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Q. Which of the following is a tool used by the Reserve Bank of India (RBI) to control money supply?
A.
Open market operations
B.
Fiscal policy
C.
Taxation
D.
Public expenditure
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Solution
Open market operations involve the buying and selling of government securities to regulate the money supply.
Correct Answer:
A
— Open market operations
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