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Monetary Policy mcqs for Competitive Exams. We covered all the Monetary Policy mcqs for Competitive Exams in this post for free so that you can practice well for the exam.
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Monetary Policy mcqs for Competitive Exams for Students
In banking terminology, what does the abbreviation SLR represent?
A) State Legal Ratio
B) Statutory Liquidity Ratio
C) Statutory Legal Ratio
D) State Liquidity Ratio
Option b – Statutory Liquidity Ratio
A reduction in the Bank rate can ______ the supply of Money.
A) Equalize
B) Not impact
C) Decrease
D) Increase
Option d – Increase
Which of the following best explains the Statutory Liquidity Ratio?
A) The proportion of a Bank’s capital compared to its overall assets
B) The percentage of deposits that banks must hold in liquid form for the short term
C) The rate at which banks borrow funds from the central Bank
D) The share of government bonds relative to a Bank’s total assets
Option b – The percentage of deposits that banks must hold in liquid form for the short term
The buying and selling of government-issued bonds is known as:
A) Marginal Requirement
B) Moral Suasion
C) Open Market Operations
D) Closed Market Operations
Option c – Open Market Operations
Within the Indian banking framework, the acronym “CRR” stands for:
A) Cash Reserve Ratio
B) Consumer Rights and Responsibilities
C) Credit Rating Regulations
D) Capital Recovery Rate
Option a – Cash Reserve Ratio
The action by a country’s monetary authority to stabilize the Money supply against external disturbances is called:
A) Neutralisation
B) Sterilisation
C) Conservation
D) Capitalisation
Option b – Sterilisation
The reserve ratio and the Money supply share a ______ relationship.
A) Linear
B) Symmetrical
C) No
D) Negative
Option d – Negative
When the Reserve Bank of India sells bonds, the Money supply is likely to:
A) Decrease
B) Fluctuate
C) Have no relationship to bond sales
D) Increase
Option a – Decrease
Under a hawkish monetary policy stance, the Reserve Bank of India generally treats repo rates by:
A) Reducing them gradually
B) Cutting them sharply by over 100 basis points
C) Increasing them
D) Leaving them unchanged
Option c – Increasing them
How is the Cash Reserve Ratio defined?
A) The portion of deposits a central Bank must hold as cash with the Bank itself
B) The portion of deposits a central Bank must hold as cash with the government
C) The proportion of deposits a bank must keep as cash with any other bank
D) The proportion of deposits a bank must keep as cash with the central bank
Option d – The proportion of deposits a bank must keep as cash with the central bank
If the RBI lowers the Cash Reserve Ratio, the supply of Money in the Economy will:
A) Decrease
B) Remain unchanged
C) Increase
D) Have an uncertain impact
Option c – Increase
Banks must maintain a specific ratio of cash in hand to total assets. This is known as:
A) Cash Reserve Ratio (CRR)
B) Statutory Liquidity Ratio (SLR)
C) Central Bank Reserve (CBR)
D) Statutory Bank Ratio (SBR)
Option b – Statutory Liquidity Ratio (SLR)
Regarding monetary policy tools, consider these statements: 1. The Central Bank can expand the Money supply by increasing the bank rate. 2. The Central Bank can expand the Money supply by buying securities from the public. 3. The Central Bank can contract the Money supply by raising the cash reserve ratio. Which statements are correct?
A) 2 only
B) 2 and 3 only
C) 1 and 3 only
D) 1, 2 and 3
Option b – 2 and 3 only
The excess amount a borrower repays compared to the original loan is known as:
A) Nominal interest rate
B) Bank rate
C) Real interest rate
D) Terms of credit
Option a – Nominal interest rate
Regarding monetary policy, consider the following: 1. The Standing Deposit Facility (SDF) rate was launched in April 2022. 2. The SDF rate replaced the fixed reverse repo rate as the floor of the LAF corridor. Which of these statements is correct?
A) 1 only
B) 2 only
C) Both 1 and 2
D) Neither 1 nor 2
Option c – Both 1 and 2
Which policy combination raises interest rates clearly and strengthens the currency’s value?
A) Expansionary fiscal and monetary policy
B) Contractionary fiscal and monetary policy
C) Contractionary fiscal policy with expansionary monetary policy
D) Contractionary monetary policy with expansionary fiscal policy
Option c – Contractionary fiscal policy with expansionary monetary policy
Which of these measures can the government adopt to curb inflation?
A) Increasing non-planned spending on Defence and police
B) Offering additional subsidies on exports
C) Raising interest rates on savings and fixed deposits
D) Reducing the cash reserve ratio (CRR)
Option c – Raising interest rates on savings and fixed deposits
If people hold more cash and keep fewer deposits, what is the likely effect on the Economy?
A) Money demand will rise
B) The Money multiplier will decline
C) The money multiplier will increase
D) Money demand will fall
Option b – The money multiplier will decline
Concerning the digital rupee, consider these statements: 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) and appears as a liability on the RBI’s balance sheet, consistent with its monetary policy. 2. It is inherently protected against inflation. 3. It is freely convertible into commercial bank money and cash. Which of these statements are correct?
A) 1 and 2 only
B) 1 and 3 only
C) 2 and 4 only
D) 1, 2 and 4
Option d – 1, 2 and 4
The Working Group under whose chairmanship proposed a new intermediate monetary aggregate named NM2, and in which year?
A) Dr. C Rangarajan; 1996
B) Dr. P. K. Mohanty; 1998
C) Dr. Y. V. Reddy; 1998
D) Dr. K. V. Kamath; 1995
Option c – Dr. Y. V. Reddy; 1998
In India, who determines the statutory liquidity ratio (SLR)? ( Monetary Policy mcqs for Competitive Exams )
A) State government
B) Reserve Bank of India
C) India Brand Equity Foundation
D) Commercial banks
Option b – Reserve Bank of India
Cash Reserve Ratio is used to manage money supply. It is categorized as: ( Monetary Policy mcqs for Competitive Exams )
A) Only Quantitative
B) Only Qualitative
C) Both Quantitative and Qualitative
D) Neither Quantitative nor Qualitative
Option b – Only Qualitative
Which action is most likely to be taken by the Reserve Bank of India to control inflation? I. Increase money supply II. Increase repo rate III. Decrease cash reserve ratio
A) Only I
B) Both II and III
C) Only I and III
D) Both I and III
Option a – Only I
The authority that sets the bank rate in India is: ( Monetary Policy mcqs for Competitive Exams )
A) State Bank of India
B) Reserve Bank of India
C) Ministry of finance
D) Securities and Exchange Board of India
Option b – Reserve Bank of India
Who is responsible for fixing the Cash Reserve Ratio (CRR) for banks in India? ( Monetary Policy mcqs for Competitive Exams )
A) Ministry of finance
B) Reserve Bank of India
C) State Bank of India
D) Ministry of External Affairs
Option b – Reserve Bank of India
To restrict credit flow in the Economy, the central bank might: ( Monetary Policy mcqs for Competitive Exams )
A) Decrease CRR
B) Buy securities in the open market
C) Reduce SLR
D) Increase bank rate
Option d – Increase bank rate
The money multiplier is calculated using which monetary variable? ( Monetary Policy MCQs for Competitive Exams )
A) Repo rate
B) Cash Reserve Ratio
C) Reverse repo rate
D) Bank rate
Option b – Cash Reserve Ratio
The minimum rate below which banks are not allowed to lend, except as permitted by the RBI, is called: ( Monetary Policy MCQs for Competitive Exams )
A) Repo rate
B) Reverse repo rate
C) Cash rate
D) Base rate
Option d – Base rate
Which rates SET the corridor for daily changes in the weighted average call money rate? ( Monetary Policy MCQs for Competitive Exams )
A) Reverse repo rate and Discount rate
B) Marginal Standing Facility rate and Reverse repo rate
C) Liquidity Adjustment Facility rate and Repo rate
D) Bank rate and Repo rate
Option b – Marginal Standing Facility rate and Reverse repo rate
Open Market Operations by the Reserve Bank of India consist of how many types? ( Monetary Policy MCQs for Competitive Exams )
A) 2
B) 3
C) 4
D) 5
Option a – 2
The main aim of monetary policy is to ensure: I. Price stability in the Economy II. Higher tax revenue for the government III. Employment generation in rural regions ( Monetary Policy MCQs for Competitive Exams )
A) Both II and III
B) Only III
C) Both I and II
D) Only I
Option d – Only I
Which of the following is not a tool of RBI’s monetary policy? ( Monetary Policy MCQs for Competitive Exams )
A) Government spending
B) Bank rate
C) Cash Reserve Ratio
D) Open Market Operations
Option a – Government spending
The method by which the central bank persuades commercial banks to provide credit in the national interest is known as: ( Monetary Policy MCQs for Competitive Exams )
A) Moral Suasion
B) Marginal Standing Facility
C) Margin Requirements
D) Credit Rationing
Option a – Moral Suasion
Identify the incorrect statement: ( Monetary Policy MCQs for Competitive Exams )
A) A rise in the bank rate will decrease the money supply.
B) Lower the Cash Reserve Ratio (CRR), lower will be the liquidity in the system.
C) Higher the Cash Reserve Ratio (CRR), lower will be the liquidity in the system.
D) Lower the Statutory Liquidity Ratio (SLR), higher will be the liquidity in the system.
Option b – Lower the Cash Reserve Ratio (CRR), lower will be the liquidity in the system.
Who heads the Monetary Policy Committee in India? ( Monetary Policy MCQs for Competitive Exams )
A) Union finance Minister
B) Deputy Governor, Reserve Bank of India
C) Comptroller and Auditor General of India
D) Governor, Reserve Bank of India
Option d – Governor, Reserve Bank of India
Which statement regarding bank reserves is correct? I. These reserves are maintained partly as cash and partly in financial instruments. II. The Cash Reserve Ratio is the deposit that commercial banks maintain with the Reserve Bank of India. ( Monetary Policy MCQs for Competitive Exams )
A) Both I and II
B) Only II
C) Only I
D) Neither I nor II
Option a – Both I and II
The monetary tool called the “bank rate” is linked to: ( Monetary Policy MCQs for Competitive Exams )
A) Liquidity Adjustment Facility
B) Cash Reserve Ratio
C) Discount rate
D) Marginal Standing Facility rate
Option d – Marginal Standing Facility rate
If inflation is rising steadily in the Economy, the Central Bank is most likely to: ( Monetary Policy MCQs for Competitive Exams )
A) Keep the repo rate unchanged
B) Decrease the repo rate
C) Decrease the reverse repo rate
D) Increase the repo rate
Option d – Increase the repo rate
Consider the following statements 1. Additional government spending of X is likely to have less impact on Income than an equivalent transfer of X to households. 2. Additional government spending of X is likely to have less impact on Income if it is not supported by an expansion in money supply. Which of the statements given above is/are correct?
A) 2 only
B) 1 only
C) Neither 1 nor 2
D) Both 1 and 2
Option a – 2 only
The money multiplier in an Economy increases with which of the following? ( Monetary Policy MCQs for Competitive Exams )
A) Increase in the Cash Reserve Ratio of banks
B) Increase in the Statutory Liquidity Ratio of banks
C) Increase in the banking habit of the people
D) Increase in the Population of the country
Option c – Increase in the banking habit of the people
Which activity of the Reserve Bank of India is regarded as part of “sterilization”? ( Monetary Policy MCQs for Competitive Exams )
A) Conducting Open Market Operations
B) Oversight of settlement and payment systems
C) Debt and cash management for the Central and State Governments
D) Regulating the functions of Non-banking Financial Institutions
Option a – Conducting Open Market Operations
We covered all the above Monetary Policy MCQs for Competitive Exams in this post for free so that you can practice well for the exam.
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