Money, Banking & Inflation

Q1. The Monetary Policy Committee (MPC) of India consists of how many members?

A. 3 B. 4 C. 6 D. 8

Q2. Under the flexible inflation targeting framework, the inflation target for India is:

A. 2% ± 1% B. 4% ± 2% C. 5% ± 1% D. 6% with no tolerance

Q3. Which of the following is a quantitative tool of monetary policy?

A. Moral suasion B. Margin requirements C. Cash Reserve Ratio (CRR) D. Selective credit control

Q4. Repo rate is the rate at which:

A. RBI borrows from commercial banks B. Commercial banks borrow from RBI against eligible securities C. Government borrows from RBI D. Banks lend to each other overnight

Q5. If RBI increases the Reverse Repo rate, the likely impact is:

A. Increase in liquidity in the banking system B. Decrease in liquidity as banks park more funds with RBI C. No impact on liquidity D. Increase in money supply

Q6. M3 (Broad Money) includes:

A. Only currency with public B. Currency with public + Demand deposits + Time deposits with banks + Other deposits with RBI C. Only time deposits D. Only M1

Q7. Core inflation excludes which of the following?

A. Manufactured products B. Food and fuel prices C. Services D. Housing

Q8. The Liquidity Adjustment Facility (LAF) primarily operates through:

A. CRR and SLR B. Repo and Reverse Repo operations C. Bank Rate only D. Open market sale of dollars

Q9. Which of the following best describes 'Stagflation'?

A. High growth with high inflation B. Low growth / recession with high inflation C. High growth with deflation D. Stable prices with high unemployment

Q10. The Statutory Liquidity Ratio (SLR) requires banks to maintain a portion of their liabilities in:

A. Cash only with RBI B. Gold, cash and approved securities C. Only foreign exchange D. Only government equity

Q11. Demand-pull inflation is primarily caused by:

A. Increase in production costs B. Excess aggregate demand relative to aggregate supply C. Supply chain disruptions only D. Decrease in money supply

Q12. Which of the following is NOT a function of the Reserve Bank of India?

A. Issuer of currency B. Banker to the government C. Formulation of fiscal policy D. Controller of credit

Q13. The money multiplier is inversely related to:

A. Cash Reserve Ratio B. Bank Rate C. Fiscal deficit D. GDP growth rate

Q14. Headline inflation in India is currently measured primarily by:

A. WPI B. CPI-Combined (Rural + Urban) C. GDP Deflator only D. CPI-Industrial Workers only

Q15. Open Market Operations refer to:

A. RBI buying/selling government securities in the open market B. Banks lending to priority sectors C. Government selling public sector equity D. RBI intervening in the forex market only

Q16. The Marginal Standing Facility (MSF) rate is typically:

A. Lower than the repo rate B. Higher than the repo rate C. Equal to the reverse repo rate D. Equal to the bank rate always

Q17. Which of the following can cause cost-push inflation?

A. Rise in crude oil prices B. Increase in wages without productivity gain C. Supply bottlenecks D. All of the above

Q18. Priority Sector Lending (PSL) targets in India apply to:

A. Only public sector banks B. All scheduled commercial banks (with some variations for different categories) C. Only cooperative banks D. Only foreign banks

Q19. The Phillips Curve in its original form suggested a trade-off between:

A. Inflation and unemployment B. Inflation and growth C. Unemployment and fiscal deficit D. Interest rate and exchange rate

Q20. If the economy is facing high inflation and RBI wants to tighten liquidity, it may:

A. Reduce CRR B. Increase repo rate and conduct open market sales C. Reduce SLR D. Buy government securities

Q21. Base effect in inflation measurement refers to:

A. Change in the base year of the index B. Impact of the previous year's price level on current inflation rate calculation C. Exclusion of base commodities D. Only WPI related phenomenon

Q22. Which of the following is a qualitative instrument of credit control?

A. Bank Rate B. CRR C. Moral suasion and margin requirements D. Repo rate

Q23. The Standing Deposit Facility (SDF) introduced by RBI is used to:

A. Inject long-term liquidity B. Absorb liquidity from the banking system without collateral C. Provide loans to NBFCs D. Manage foreign exchange reserves

Q24. Deflation is a situation of:

A. Rising prices B. Falling general price level C. Stable prices with high growth D. Hyperinflation

Q25. Which measure of money supply is known as 'Narrow Money'?

A. M0 B. M1 C. M3 D. M4

Q26. The primary objective of monetary policy in India under the current framework is:

A. Maximising employment only B. Price stability while keeping in mind growth C. Only exchange rate stability D. Only fiscal deficit control

Q27. Non-Performing Assets (NPAs) of banks are those advances where interest or principal is overdue for more than:

A. 30 days B. 60 days C. 90 days D. 180 days

Q28. Which of the following statements about Payment Banks is correct?

A. They can give loans to any customer B. They cannot issue credit cards or give loans (with limited exceptions) C. They are not regulated by RBI D. They must maintain 100% SLR

Q29. If the Cash Reserve Ratio is 4% and the banking system receives an additional ₹100 crore of deposits, the maximum potential increase in total deposits (simple multiplier) is:

A. ₹100 crore B. ₹400 crore C. ₹2500 crore D. ₹4000 crore

Q30. Wholesale Price Index (WPI) in India is primarily used for:

A. Inflation targeting by MPC B. Measuring inflation at the producer/wholesale level and as a deflator for some purposes C. Calculating dearness allowance of central government employees exclusively D. Setting the repo rate directly

Q31. The 'transmission' of monetary policy refers to:

A. How changes in policy rates affect lending rates, deposit rates and the real economy B. Transfer of funds from RBI to government C. Only the forex market channel D. Printing of currency notes

Q32. Which of the following can lead to an increase in the money supply?

A. RBI purchasing government securities from the market B. Increase in CRR C. RBI selling dollars in the forex market (and not sterilising) D. Both A and related liquidity injection operations

Q33. Hyperinflation is generally defined as monthly inflation exceeding roughly:

A. 5% B. 10% C. 50% D. 100%

Q34. The Bank Rate is:

A. The rate at which banks lend to the public B. The rate at which RBI rediscounts bills or lends to banks on a longer-term basis C. Always equal to the repo rate D. The rate on savings deposits

Q35. Which of the following is true about 'Sterilisation' by the central bank?

A. It is the process of offsetting the domestic liquidity impact of forex intervention B. It means stopping all money printing C. It is the same as demonetisation D. It only applies to gold reserves

Q36. Inflationary gap arises when:

A. Aggregate demand exceeds aggregate supply at full employment level B. Aggregate supply exceeds aggregate demand C. There is deficient demand D. There is only cost-push inflation

Q37. Which of the following institutions is the lender of last resort in India?

A. SBI B. NABARD C. RBI D. Ministry of Finance

Q38. The concept of 'Seigniorage' refers to:

A. Profit made by the government/central bank from issuing currency B. Interest on government bonds C. Tax on banks D. Fee charged for RTGS

Q39. If inflation is higher than expected, the real interest rate will be:

A. Higher than the nominal rate B. Lower than the nominal rate (and lower than expected real rate) C. Equal to the nominal rate D. Unaffected

Q40. Which of the following is an example of 'structural inflation' in the Indian context?

A. Inflation caused purely by excess money supply B. Inflation arising from agricultural supply constraints and infrastructure bottlenecks C. Only imported inflation D. Deflation in manufacturing

Q41. The Monetary Policy Framework Agreement between the Government of India and RBI was signed to formalise:

A. Fiscal deficit targets B. Inflation targeting regime C. Exchange rate peg D. Priority sector targets

Q42. Which of the following deposits is included in M1 but not in the narrowest sense of currency?

A. Time deposits B. Demand deposits with banks C. Post office savings D. Certificate of deposits only

Q43. A high level of NPAs in the banking system primarily affects:

A. Only the stock market B. Credit creation capacity and profitability of banks C. Only the fiscal deficit D. Export growth directly

Q44. Which tool would RBI most likely use for durable (long-term) liquidity management?

A. Overnight repo only B. Open Market Operations (including Operation Twist) and CRR changes C. Only MSF D. Only SDF

Q45. The term 'Reflation' refers to:

A. Policy aimed at expanding output and raising prices from a deflationary situation B. Hyperinflation policy C. Only fiscal expansion D. Currency devaluation only

Q46. In the IS-LM framework, an increase in money supply (LM shifts right) typically leads to:

A. Higher interest rates and lower output B. Lower interest rates and higher output (in the short run) C. No change in interest rates D. Higher interest rates and higher output always

Q47. Which of the following best describes 'Imported inflation'?

A. Inflation caused by rise in prices of imported goods (e.g., oil) B. Inflation exported to other countries C. Only food inflation D. Inflation due to domestic wage rise

Q48. The Cash-Deposit Ratio influences the money multiplier in which way?

A. Higher cash-deposit ratio increases the multiplier B. Higher cash-deposit ratio reduces the multiplier C. It has no effect D. It only affects CRR

Q49. Which of the following is true regarding the relationship between fiscal deficit and monetary policy?

A. Large fiscal deficits can complicate monetary management by putting upward pressure on interest rates and inflation B. Fiscal deficit has no link with monetary policy C. RBI must always monetise the entire fiscal deficit D. Fiscal deficit automatically reduces money supply

Q50. The primary purpose of the Market Stabilisation Scheme (MSS) was historically to:

A. Finance the fiscal deficit B. Absorb excess liquidity arising from large capital inflows C. Provide long-term loans to industry D. Replace CRR completely

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