Monetary and Fiscal Policy, Union Budget and Resource Mobilisation: RAS Prelims MCQs
86 RAS Prelims MCQs on monetary and fiscal policy, the Union Budget and resource mobilisation test the tools of the RBI, the Monetary Policy Committee and inflation targeting, along with the deficits, taxes and budget terms. Each question asks for the effect of a policy change on liquidity or credit, so the explanations trace the transmission step by step.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
Showing 41–50 of 86 questions
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q41. Consider the following statements regarding deficit measures: I. Revenue deficit indicates that the government’s regular revenue is not sufficient to meet its regular expenditure. II. Fiscal deficit is a comprehensive measure that indicates the total borrowing requirements of the government. III. Primary deficit is calculated by deducting interest payments from the fiscal deficit. IV. A zero primary deficit means the government is borrowing only to pay interest on past debts. V. Effective revenue deficit excludes grants given for the creation of capital assets. Which of the above statements are correct?
Explanation
Revenue deficit shows the gap in regular income and spending, while fiscal deficit captures total borrowing needs. Primary deficit excludes interest to show current fiscal pressure. A zero primary deficit means borrowing is only for past interest. Effective revenue deficit adjusts for grants that create assets. Together, these indicators provide a comprehensive view of the government’s fiscal position and long-term sustainability.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q42. What does the Primary Deficit of the government essentially indicate?
Explanation
This specific deficit measure focuses on the government’s current fiscal health by removing the burden of interest payments on historical debt. It shows whether the government’s current policies and expenditures, excluding past obligations, are sustainable within its existing revenue. A lower value indicates that the government is not borrowing heavily to fund its present-day consumption or investment activities beyond interest.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q43. Which of the following statements correctly highlights the significance of the Revenue Deficit?
Explanation
A revenue deficit occurs when the government’s daily operational expenses exceed its regular income. This situation implies that the government is forced to borrow or sell assets to pay for its consumption needs, such as salaries and subsidies. This practice is seen as dissaving, as it diverts funds away from productive investment and creates a future debt burden without creating assets.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q44. Match the specific deficit concepts in List I with their corresponding formulas in List II.
Deficit Concept
Formula
A. Revenue Deficit
i. Total Expenditure - (Revenue Receipts + Non-debt Capital Receipts)
B. Fiscal Deficit
ii. Fiscal Deficit - Interest Payments
C. Primary Deficit
iii. Revenue Deficit - Grants in aid for creation of capital assets
D. Effective Revenue Deficit
iv. Revenue Expenditure - Revenue Receipts
Explanation
Revenue deficit is the gap between revenue spending and income. Fiscal deficit measures the total expenditure exceeding all non-debt receipts. Primary deficit is derived by subtracting interest payments from the fiscal deficit. Finally, the effective revenue deficit is calculated by taking the revenue deficit and subtracting grants given for asset creation, providing a more nuanced view of consumption spending by the government.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q45. If the primary deficit of the Union Government is zero, what is the direct consequence?
Explanation
When the primary deficit is zero, the government’s total borrowing is exactly equal to the amount it needs to pay as interest on its accumulated past debt. This implies that the government’s current non-interest expenditures are fully covered by its current non-borrowed receipts. It highlights a situation where the entire new debt is incurred solely to service old financial obligations.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q46. Which of the following best describes the ‘monetization of fiscal deficit’?
Explanation
This process involves the central bank directly purchasing government securities to provide the state with the funds needed to cover its spending gap. Essentially, it increases the total money supply in the economy by creating new money. While it helps the government finance its deficit without borrowing from the market, it can lead to high inflationary pressures if not managed.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q47. Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R). Assertion (A): A persistently high fiscal deficit can lead to the ‘crowding out’ of private investment. Reason (R): High government borrowing absorbs a large portion of available domestic savings, leading to higher interest rates for private borrowers.
Explanation
When the government borrows heavily to fund its deficit, it reduces the pool of available savings for other borrowers. This competition for funds drives up interest rates in the economy. Higher borrowing costs discourage private firms from taking loans for expansion or new projects. Consequently, public sector borrowing displaces or "crowds out" private investment, potentially hindering overall economic productivity and growth.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q48. Identify the odd one out among the typical sources used by the Union Government to finance its Fiscal Deficit.
Explanation
To cover its fiscal deficit, the government typically relies on various forms of borrowing, such as issuing treasury bills, sovereign bonds, or taking loans from international agencies. These methods involve creating liabilities. Grants-in-aid, however, are non-repayable receipts that do not create debt. Therefore, they are classified as revenue receipts and are not a method of financing a deficit through borrowing.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q49. Which of the following statements regarding ‘Effective Revenue Deficit’ is incorrect?
Explanation
This fiscal metric was introduced to provide a more accurate picture of government consumption. It is calculated by subtracting grants given for the creation of capital assets from the revenue deficit, not by adding capital expenditure. This adjustment recognizes that some revenue spending actually contributes to asset formation, thus distinguishing between pure consumption and spending that has a long-term impact.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q50. The primary objective of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, is to:
Explanation
The legislation aims to ensure long-term fiscal discipline and sustainability in government finances. By setting targets to reduce deficits and debt, it seeks to prevent the current generation from passing excessive financial burdens onto future generations. This framework promotes macroeconomic stability by curbing inflation, managing interest rates, and ensuring that public spending remains within the limits of sustainable resource mobilization today.
Answer key for these questions
Q
Correct answer
41
(d) I, II, III, IV and V
42
(d) Current fiscal deficit minus interest on past debt
43
(b) Government dissaving to finance consumption
44
(a) A-iv, B-i, C-ii, D-iii
45
(d) Fiscal deficit equals interest on past debt
46
(a) The central bank printing new currency notes to finance the government’s budget deficit
47
(a) Both A and R are true and R is the correct explanation of A.
48
(b) Grants-in-aid from foreign nations
49
(a) It is calculated by adding capital expenditure to the revenue deficit
50
(c) Achieving inter-generational equity and macro stability
Key facts from Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
The objective of monetary policy under the RBI Act, 1934 is to maintain price stability while supporting growth.
If the RBI increases the CRR, the lendable resources of commercial banks decrease.
A higher reverse repo rate encourages banks to park funds with the RBI, reducing liquidity.
The statutory framework for the Monetary Policy Committee was introduced by amending the Reserve Bank of India Act, 1934.
Inflation targeting means keeping retail inflation within a statutory target range.
When the RBI buys government securities from the market, the total money supply increases.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Monetary and Fiscal Policy, Union Budget and Resource Mobilisation?
This page has 86 practice MCQs on Monetary and Fiscal Policy, Union Budget and Resource Mobilisation (Indian Economy). Each has the correct answer, and most have an explanation.
What happens when the RBI raises the CRR?
Banks must keep a larger share of their deposits with the RBI, so their lendable resources decrease. Credit becomes tighter, and the policy is used to control inflation.
What is inflation targeting?
A monetary policy framework in which the central bank aims to keep inflation within a stated range. In India the RBI works to a statutory target for retail (CPI) inflation, and the Monetary Policy Committee decides the policy rate.
What is the effect of the RBI buying government securities?
It pays the sellers with new money, so the total money supply in the economy increases. This is an open market operation, used to add liquidity, and selling securities does the opposite and absorbs liquidity from the banks.
