Static Quiz 23 May 2022 (Indian Economy)

Ans;- c) Both 1 and 2

Explanation;-

• Both the statements are correct regarding Monetary Policy Committee

About Monetary Policy Committee

• The Monetary Policy Committee (MPC) is a committee constituted by the Reserve Bank of India and led by the Governor of RBI.
• Monetary Policy Committee was formed with the mission of fixing the benchmark policy interest rate (repo rate) to restrain inflation within the particular target level. 
• Monetary Policy was implemented with an initiative to provide reasonable price stability, high employment, and a faster economic growth rate.
• The major four objectives of the Monetary Policy are mentioned below:
1. To stabilize the business cycle.
2. To provide reasonable price stability.
3. To provide faster economic growth.
4. Exchange Rate Stability.
• Monetary Policy Committee (MPC) was constituted as per Section 45ZB under the RBI Act of 1934 by the Central Government. 
• The committee comprises six members – three officials of the Reserve Bank of India and three external members nominated by the Government of India.
• The current mandate of the committee is to maintain 4% annual inflation until 31 March 2021 with an upper tolerance of 6% and a lower tolerance of 2%.
• Decisions are taken by majority with the Governor having the casting vote in case of a tie.

Explanation;-

• Both the statements are reversed.

• Reverse Repo Rate is a mechanism to absorb the liquidity in the market, thus restricting the borrowing power of investors. Reverse Repo Rate is when the RBI borrows money from banks when there is excess liquidity in the market. The banks benefit out of it by receiving interest for their holdings with the central bank.

• Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

Ans;- c) Both 1 and 2

Explanation;-

• Both the statements are correct

• Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the sister strategy to monetary policy through which a central bank influences a nation’s money supply.
• Fiscal Policy deals with the revenue and expenditure policy of the Govt.
• The word fiscal has been derived from the word ‘fisk’ which means public treasury or Govt funds.
• Tools of fiscal policy:-
a. Taxation
b. Public expenditure
c. Public debt
d. Plan and Non-Plan Expenditure
• Public Debt means debt on the Govt -It is accumulated borrowing of the Govt

Ans;- d) None of the above

Explanation;-

• In economics and political science, fiscal policy is the use of government revenue collection and expenditure to influence a country’s economy.
• Monetary policy the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often as an attempt to reduce inflation or the interest rate to ensure price stability and general trust of the value and stability of the nation’s currency.

Ans;- d) None of the above

Explanation;-

• Both the statements are reversed.

• The Quantitative Instruments are also known as the General Tools of monetary policy. These tools are related to the Quantity or Volume of the money. The Quantitative Tools of credit control are also called as General Tools for credit control.
• The Qualitative Instruments are also known as the Selective Tools of monetary policy. These tools are not directed towards the quality of credit or the use of the credit. They are used for discriminating between different uses of credit.