Indian Economy PYQ – Monetary Policy and Inflation

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Indian Economy PYQ – Monetary Policy and Inflation – 10 questions, subject: Economy. Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.

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1.  
VAS AHGS 2020
The instruments of monetary policy are
I. Bank rate
II. Tax rate
III. Cash reserve ratio

Correct Answer: C [I and III are correct]

Explanation:

The bank rate and cash reserve ratio are monetary policy instruments used by the RBI, whereas the tax rate is a fiscal policy tool.

2.  
CTS (Interview Posts-II) 2024
Which of the following is not an instrument of monetary policy?

Correct Answer: D [Interest cost of servicing the debt]

Explanation:

Interest on government debt is a budgetary expenditure under fiscal policy, whereas bank rate, open market operations and CRR are monetary policy instruments.

3.  
ADGS 2021
The reason for formulating the monetary policy is
1. Increase in tax revenue
2. Economic growth
3. Reduce poverty
4. Inflation control

Correct Answer: D [2 and 4]

Explanation:

Monetary policy aims at price stability (inflation control) while keeping in mind the objective of economic growth, so options 2 and 4 are correct.

4.  
Group 1 2022
The Monetary Policy of the Government of India emphasised the following two aims of the economic policy :
(i) To control and reduce inflationary pressure in the economy
(ii) Speed up economic development in the country to raise national income and standard of living of the people
(iii) To increase the per capita income
(iv) To have a cheap money policy

Correct Answer: B [(i) and (ii) are correct]

Explanation:

India's monetary policy followed controlled expansion, stressing the twin aims of curbing inflationary pressure and speeding up economic growth.

5.  
Health Officer 2023
Which one of the following is not the main objective of monetary policy?

Correct Answer: B [Encourage capital market]

Explanation:

Monetary policy aims at price stability, full employment, growth and exchange rate and balance of payments stability; regulating capital market growth is SEBI's role.

6.  
CTS (Interview Posts-II) 2024
Monetary policy in an underdeveloped country plays an important role in increasing the growth rate by :
(i) influencing the cost (of credit)
(ii) availability of credit
(iii) controlling inflation

Correct Answer: D [(i), (ii) and (iii)]

Explanation:

In developing countries monetary policy promotes growth by influencing the cost and availability of credit for investment while keeping inflation in check, so all three statements are correct.

7.  
Special Competitive Exam 2025
Variable Cash Reserve Ratio as an instrument of monetary policy was first suggested by

Correct Answer: D [J.M. Keynes]

Explanation:

J.M. Keynes first suggested variable cash reserve ratios as a credit control tool in his Treatise on Money (1930).

8.  
Fisheries Dept. 2023
Defects of the Indian money market :
(1) Absence of integration
(2) Diversity in money rates of interest
(3) Absence of the bill market

Correct Answer: B [1, 2 and 3]

Explanation:

The Indian money market has long suffered from lack of integration between its segments, diverse interest rates across regions and an underdeveloped bill market.

9.  
ARGS 2020
A state in which the value of money is falling and prices are rising is called

Correct Answer: A [Inflation]

Explanation:

Inflation is a state in which the general price level keeps rising and the purchasing power of money keeps falling.

10.  
CTS (Interview Posts) 2025
Under circumstances of high inflation in the country, the appropriate fiscal policy is
(i) increased government spending on public projects
(ii) reduction in the tax rates
(iii) reducing subsidies given to general public and firms

Correct Answer: C [(iii) only]

Explanation:

In high inflation the government should reduce aggregate demand by cutting spending and subsidies or raising taxes, so only option (iii) is appropriate.

? Full explanations with tables – Indian Economy PYQ book (₹149): www.shanmugamiasacademy.in/study-materials/tnpsc-indian-economy-pyq

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