GK Quiz on Monetary Policy of India

Take the following GK Quiz consisting of questions on monetary policy of India. The quiz would be extremely helpful to the candidates preparing for various Government Job exams.
Created On: Sep 1, 2021 20:35 IST
Modified On: Sep 8, 2021 11:50 IST
Monetary Policy
Monetary Policy

Take the following GK quiz based on the monetary policy of India. This is the policy that aims to maintain price stability and also stabilize the exchange rate creating a healthy balance of payment, financial stability, and economic growth in the country. Take a look below

  1. What is meant by monetary policy?
  1. Process by which the Parliament controls the money supply
  2. Process by which the central bank or monetary authority of a country controls supply of money
  3. Process by which International Market controls the money supply
  4. None of the above 

Ans. b

Explanation: Monetary policy is the process by which the monetary authority of a country, generally the central bank, controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.

  1. Who is the Central monetary policy in India?
  1. RBI
  2. Finance Ministry
  3. Parliament
  4. Prime Minister

Ans. a

Explanation: In India, the central monetary authority is the Reserve Bank of India

  1. What is the difference between real interest rate and nominal rate?

i) Real interest rates take into account inflation

ii) Nominal rates are those which apply only to borrowers and not lenders

  1. Only i
  2. Only ii
  3. Both i and ii
  4. None of the above

Ans. a 

Explanation: Real Interest Rates are nominal rates adjusted for inflation. In case the nominal rates are 4% and inflation is 3%, the real rate is only 1 % 

  1. Quantitative easing is the common name for?
  1. Asset selling by a central bank
  2. Asset purchasing by a central bank
  3. Lowering of interest rate for commercial bank lending
  4. When a central bank reduce rates

Ans. b

Explanation: Asset purchasing by electronic money has been given the name of quantitative easing. It enables a central bank to bypass the normal channels for increasing liquidity in the economy enabling money to be put to a greater use in terms of the wider economy. 

  1. Who is empowered to control expansion of bank credit?
  1. Finance Minister
  2. Home Minister
  3. Reserve Bank of India
  4. None of the above 


Explanation: One of the important functions of RBI is the controlled expansion of bank credit and money supply with special attention to seasonal requirements for credit without affecting the output. 

  1. Which of the following are the indicators of the Monetary Policy?
  1. Inflation
  2. GDP
  3. MSF Rate
  4. All of the above 

Ans. d

Explanation: The key indicators of the monetary policy include all the above. It also includes Inflation, MSF, SLR, CRR, Bank rate etc. 

  1. What is meant by Repo Rate?

i) Rate at which RBI lends commercial banks in place of Govt securities

ii) Rate at which Commercial Banks lend the clients

  1. Only i
  2. Only ii
  3. Both i and ii
  4. None of the above 

Ans. a

Explanation: Repo rate is the rate at which RBI lends to its clients generally against government securities.  

  1. Increase in Repo Rate can 

i) Increase the cost of borrowing and lending of the banks

ii) Decrease the cost of lending to the banks 

  1. Only i
  2. Only ii
  3. Both i and ii
  4. None of the above 

Ans. a

Explanation: The increase in the repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money.

  1. What is the CRR?

i) It is a percentage of bank deposits that they keep with the RBI as Gold deposit only

ii) It is a deposit made by banks with RBI in form of reserve or balances

Only i

Only ii

Both i and ii

None of the above 

Ans. b

Explanation: Cash reserve ratio is a certain percentage of bank deposits which banks are required to keep with RBI in the form of reserves or balances. 

10. Which of the following statements is true of SLR?

  1. It is to be maintained by all Financial Institutions
  2. It is to be maintained as liquid assets
  3. These need to be kept in non cash form
  4. All of the above 

Ans. d

Explanation: Statutory liquidity ratio is to be kept in non cash form such as G-secs precious metals, approved securities like bonds. Every financial institution has to maintain this in quantity of liquid assets.   

Also Read | GK Quiz on Special Economic Zones (SEZ) in India 

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