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 51–60 of 86 questions
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q51. Consider the following statements regarding the ‘Escape Clause’ under the FRBM framework: I. It allows the government to deviate from the fiscal deficit target under exceptional circumstances. II. National security crises, acts of war, and national calamities are valid grounds to invoke it. III. The deviation is allowed limitlessly without any capped percentage. Which of the above statements are correct?
Explanation
This provision allows the government to exceed the prescribed fiscal deficit targets during extraordinary situations such as war, national calamities, or severe economic collapses. While it provides necessary flexibility for crisis management, the deviation is not unlimited. The framework specifies that such deviations must be capped and accompanied by a clear plan to return to the path of consolidation.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q52. The N.K. Singh Committee was primarily constituted by the Government of India to review which of the following?
Explanation
This expert panel was tasked with evaluating the existing fiscal discipline legislation and suggesting a new roadmap for deficit management. The committee recommended shifting the focus toward the debt-to-GDP ratio as a primary fiscal anchor. Its findings influenced reforms in how the government sets fiscal targets, ensuring they are realistic and responsive to the evolving needs of the national economy.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q53. Which of the following statements best describes ‘Fiscal Consolidation’?
Explanation
This process involves implementing strategic measures to improve the government’s financial position by narrowing the gap between revenue and expenditure. It is achieved through increasing tax collections, rationalizing subsidies, and curbing non-essential spending. Successful consolidation lowers the national debt burden, reduces interest rates, and creates a stable environment for investment, which is essential for maintaining long-term economic health.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q54. Read the following statements and select the correct option. Statement I: The FRBM Act originally mandated the elimination of the revenue deficit. Statement II: The FRBM Act strictly prohibits the RBI from subscribing to the primary issues of Central Government securities.
Explanation
The legislation originally set a goal to completely eliminate the revenue deficit to ensure that the government does not borrow for consumption. Furthermore, it strictly prohibited the central bank from participating in the primary market for government securities to prevent the direct monetization of debt. These rules were designed to instill transparency and discipline in the management of public finances.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q55. A government is striving to meet its FRBM fiscal deficit target of 3% of GDP but is facing a revenue shortfall. Which of the following measures is an acceptable method of fiscal consolidation?
Explanation
To achieve fiscal targets sustainably, the government should focus on enhancing revenue through better tax administration and reducing unnecessary expenditures. This approach improves the quality of the budget without compromising essential investments in infrastructure or social welfare. Methods like printing money or defaulting on debt are harmful and unsustainable, whereas structural reforms lead to long-term stability and increased fiscal space.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q56. Consider the following statements about the documents mandated by the FRBM Act to be laid before Parliament along with the Union Budget: I. Macro-Economic Framework Statement. II. Medium-Term Fiscal Policy Statement. III. Fiscal Policy Strategy Statement. IV. Annual Financial Statement. Which of the above statements are correct?
Explanation
The act requires the government to present three specific statements to parliament alongside the budget to ensure transparency. These include the macroeconomic framework, the medium-term fiscal policy, and the fiscal policy strategy. While the annual financial statement is a constitutional requirement for the budget itself, it is not a document specifically created by the mandate of the fiscal responsibility legislation.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q57. Which of the following is NOT a target parameter typically monitored under the FRBM framework?
Explanation
Fiscal responsibility targets typically focus on indicators related to the government’s budget, such as the fiscal deficit, revenue deficit, and the overall level of public debt relative to the economy’s size. These are fiscal policy metrics. In contrast, the cash reserve ratio is a monetary policy tool managed exclusively by the central bank to regulate liquidity and banking operations effectively.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q58. From the options provided, select the correct sequence of deficits in India in decreasing order of their typical magnitude (from largest to smallest).
Explanation
The fiscal deficit is the broadest measure, representing the total borrowing requirement, and is typically the largest. The revenue deficit, which covers the gap in day-to-day spending, is generally smaller than the fiscal deficit but larger than the primary deficit. The primary deficit is the smallest as it further excludes interest payments from the total fiscal borrowing needs of the government.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q59. Under which Article of the Constitution of India is the Union Budget referred to as the "Annual Financial Statement"?
Explanation
The Constitution requires the President to present an estimate of the government’s receipts and expenditures for each financial year to the parliament. This document, known as the annual financial statement, outlines the planned fiscal activities of the Union. This constitutional mandate ensures legislative oversight over the executive’s power to tax and spend, forming the legal basis for the budget.
RAS PrelimsIndian Economy · Monetary and Fiscal Policy, Union Budget and Resource Mobilisation
Q60. Consider the following statements regarding the Union Budget: I. The budget is presented in the Lok Sabha by the Finance Minister. II. The Rajya Sabha has the power to vote on the Demands for Grants. III. The Finance Bill contains provisions for giving effect to the financial proposals of the Government. IV. The Appropriation Bill authorizes withdrawal of funds from the Consolidated Fund of India. V. The budget must be passed before the beginning of the new financial year to avoid a Vote on Account. Which of the above statements are correct?
Explanation
The budget process involves several key steps and documents. While the upper house discusses the budget, it does not have the power to vote on demands for grants. The finance and appropriation bills are essential for tax changes and fund withdrawals. Ensuring the budget is passed before April prevents the need for temporary funding measures to keep the government running.
Answer key for these questions
Q
Correct answer
51
(a) I and II only
52
(c) Reviewing FRBM implementation and fiscal framework
53
(b) Government policies aimed at reducing deficits and accumulation of debt
54
(a) Both Statement I and Statement II are correct
55
(c) Rationalizing non-essential spending and improving compliance
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.
