Q201. According to the Reserve Bank of India Act, 1934, what is the primary objective of the monetary policy formulated by the RBI?
Indian Economy: RAS Prelims MCQs
848 RAS Prelims practice MCQs on the Indian economy are on this page, in 10 chapters. They cover economic growth and development, the Human Development Index, monetary and fiscal policy and the Union Budget, fiscal federalism, agricultural development, industrial reforms and LPG, the service sector, energy and transport, skill development and employment, and social justice. Each question has an answer and an explanation.
Practice questions based on the RPSC RAS Prelims syllabus. They follow the exam pattern but are not past-paper questions.
Showing 201–210 of 848 questions
Browse Indian Economy chapters
Q202. Which of the following statements correctly describes the Repo Rate?
Explanation
The repurchase rate serves as a key liquidity management tool where the central bank provides short-term funds to commercial banks. Banks pledge government securities as collateral under an agreement to buy them back at a future date. Adjusting this rate directly influences the overall interest rate structure and the cost of credit available within the broader financial system and economy.
Q203. If the Reserve Bank of India decides to increase the Cash Reserve Ratio (CRR), what will be the most likely impact on the banking system?
Explanation
Increasing the reserve requirement mandates commercial banks to park a higher proportion of their total deposits with the central bank. Consequently, the volume of funds available for lending to website businesses and individuals is restricted. This reduction in loanable capital serves as a contractionary measure to control liquidity, manage inflationary pressures, and regulate the overall money supply in the economy.
Q204. Identify the odd one out among the following instruments of economic stabilization.
Explanation
Economic stabilization measures are generally divided into monetary and fiscal categories. Tools such as open market operations, statutory liquidity ratios, and standing facilities are managed by the central bank to regulate money supply and interest rates. In contrast, taxation strategies involve government decisions regarding revenue collection, representing a primary instrument of fiscal policy rather than central bank operations or tools.
Q205. What happens when the Reserve Bank of India increases the Reverse Repo Rate?
Explanation
Raising the interest rate on deposits kept with the central bank makes it more attractive for commercial banks to park their surplus cash. This action effectively drains excess liquidity from the financial system by incentivizing banks to lend less to the public. It serves as a contractionary tool to tighten the money supply and control rising inflation levels in markets.
Q206. Given below are two statements, one is labelled as Assertion (A) and the other as Reason (R).
Assertion (A): During periods of high inflation, the Reserve Bank of India generally sells government securities in the open market.
Reason (R): Selling government securities helps the central bank absorb excess liquidity from the banking system.
Assertion (A): During periods of high inflation, the Reserve Bank of India generally sells government securities in the open market.
Reason (R): Selling government securities helps the central bank absorb excess liquidity from the banking system.
Explanation
Selling government securities in the open market is a contractionary measure designed to reduce the money supply. When the central bank sells these bonds, it collects cash from commercial banks, thereby decreasing their capacity to create credit. This reduction in systemic liquidity helps lower aggregate demand, which is crucial for managing price levels and stabilizing the economy during inflation.
Q207. Which of the following statements regarding the Statutory Liquidity Ratio (SLR) is incorrect?
Explanation
Commercial banks are required to maintain a specific percentage of their net demand and time liabilities in liquid assets like gold or securities. This mandatory reserve ensures solvency and controls the flow of credit. However, the central bank does not provide any interest payments on these holdings. Banks typically earn returns from the underlying securities themselves rather than from the RBI.
Q208. Which of the following represents the correct sequence of policy rates generally maintained by the RBI in descending order of their magnitude under normal economic conditions?
Explanation
Under normal economic conditions, the corridor for interest rates is structured with the marginal standing facility at the top to penalize emergency borrowing. The repo rate acts as the primary signal rate in the middle. The reverse repo rate forms the floor, ensuring that the return on parking funds remains lower than the cost of borrowing from the central bank.
Q209. What is the immediate effect of the Reserve Bank of India purchasing government securities from the public under Open Market Operations?
Explanation
When the central bank buys government bonds from the public or financial institutions, it injects liquidity directly into the banking system. This increase in cash reserves enables banks to expand their lending activities to businesses and consumers. Such expansionary measures are typically used to stimulate economic activity, lower interest rates, and ensure adequate credit flow within the national financial system.
Q210. Consider the following statements regarding the Monetary Policy Committee (MPC):
I. It is a six-member committee constituted by the Central Government.
II. The Union Finance Minister is the ex-officio Chairperson of the MPC.
III. Decisions are taken by a majority vote, with the Governor having a casting vote in case of a tie.
Which of the above statements are correct?
I. It is a six-member committee constituted by the Central Government.
II. The Union Finance Minister is the ex-officio Chairperson of the MPC.
III. Decisions are taken by a majority vote, with the Governor having a casting vote in case of a tie.
Which of the above statements are correct?
Explanation
The monetary policy committee consists of six members appointed by the government and the central bank. It is chaired by the governor, not the finance minister, to ensure institutional independence. Decisions are reached through a democratic voting process where each member has one vote. In the event of a tie, the governor possesses a second or casting vote during meetings.Answer key for these questions
| Q | Correct answer |
|---|---|
| 201 | (a) Maintain price stability and support growth |
| 202 | (c) Rate for RBI’s short-term lending to banks against securities |
| 203 | (d) The lendable resources of the commercial banks will decrease |
| 204 | (b) Taxation Policies |
| 205 | (d) Encourages banks to park funds with RBI, reducing liquidity |
| 206 | (a) Both A and R are true and R is the correct explanation of A. |
| 207 | (c) The Reserve Bank of India pays a fixed penalty interest to banks on the SLR maintained |
| 208 | (a) Marginal Standing Facility Rate, Repo Rate, Reverse Repo Rate |
| 209 | (d) Total money supply in the economy increases |
| 210 | (c) I and III only |
Key facts from Indian Economy
- The RPSC syllabus lists economic concepts and the Indian economy as the first part of the Economy paper, followed by the economy of Rajasthan.
- Concept questions test definitions: nominal and real GDP, GNP and NDP, per capita income and the value-added method.
- Policy questions pair a tool with its effect, for example a rise in CRR reduces the lendable resources of banks.
- Scheme questions ask for the target group, ministry or year of schemes such as PMKVY, NAPS, PM SVANidhi and PM-SYM.
- Questions on Finance Commission and GST link the body to its Article, such as Article 280.
Frequently asked questions
How many RAS Prelims practice MCQs are there on Indian Economy?
This page has 848 practice MCQs on Indian Economy. Each has the correct answer, and most have an explanation.
Which chapters does the Indian economy set cover?
Ten chapters: economic growth, development and sustainable development; measurement of development (HDI); monetary and fiscal policy and the Union Budget; fiscal federalism and the Finance Commission; agricultural development; industrial growth and LPG reforms; the service sector; energy, transport and communication; skill development and employment; and social justice and empowerment.
Is the Indian economy in the RAS Prelims syllabus?
Yes. RPSC lists Economic Concepts and the Indian Economy as the first part of the Economy paper. The second part covers the economy of Rajasthan, which is on its own page.
How should I revise economy for RAS Prelims?
Learn the definitions and the cause-and-effect chains first, then the schemes with their year, ministry and target group. Attempt each chapter, read every explanation and keep a one-line note for each scheme and body.