Q211. Which of the following defines the concept of ‘Inflation Targeting’ adopted 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 211–220 of 848 questions
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Q212. The statutory framework for the Monetary Policy Committee (MPC) was introduced by amending which of the following legislations?
Explanation
The institutional framework for determining interest rates was formalized through a significant amendment to the primary legislation governing central bank operations. This legal change mandated the creation of a committee to ensure a transparent and consultative approach to monetary policy. By codifying these responsibilities, the law strengthened the accountability and effectiveness of the nation’s inflation management strategies and policy processes.
Q213. Match the following terms in List I with their accurate descriptions in List II.
| Monetary Stance | Description |
|---|---|
| A. Accommodative Stance | i. The central bank prioritizes controlling inflation, often by raising interest rates |
| B. Neutral Stance | ii. The central bank is willing to either cut or raise rates based on data |
| C. Hawkish Stance | iii. Rates will either be kept on hold or raised, but not cut |
| D. Calibrated Tightening | iv. The central bank is prepared to expand money supply to boost growth |
Explanation
An accommodative stance focuses on expanding the money supply to foster growth, while a hawkish stance prioritizes inflation control through higher rates. A neutral position allows for flexibility in either direction based on emerging data. Calibrated tightening indicates a bias toward maintaining or increasing rates. These stances provide critical signals to financial markets regarding future policy directions and economic priorities today.
Q214. In response to a sharp rise in core inflation, the Monetary Policy Committee decides to hike the repo rate by 50 basis points. Which of the following is an intended consequence of this action?
Explanation
Raising the benchmark interest rate increases the cost at which commercial banks borrow from the central bank. These banks subsequently pass on the higher costs to consumers and businesses through increased lending rates. This process discourages spending and investment, which helps in cooling down an overheating economy and curbing inflationary pressures by reducing the overall demand for various services.
Q215. Which of the following is NOT a direct objective of the Reserve Bank of India’s Monetary Policy?
Explanation
The central bank focuses on maintaining price stability, ensuring a smooth flow of credit to productive sectors, and protecting the overall health of the financial system. These goals support sustainable economic development. However, the management of tax collections and revenue targets is a purely fiscal function handled by the government, specifically the finance ministry, rather than a central monetary goal.
Q216. Consider the following statements regarding reserve ratios:
I. CRR is maintained in cash, whereas SLR can be maintained in liquid assets like gold and G-secs.
II. Banks earn interest on CRR balances kept with the RBI but earn nothing on SLR.
III. Both CRR and SLR are calculated as a percentage of Net Demand and Time Liabilities (NDTL).
IV. Reducing CRR and SLR releases liquidity into the banking system.
Which of the above statements are correct?
I. CRR is maintained in cash, whereas SLR can be maintained in liquid assets like gold and G-secs.
II. Banks earn interest on CRR balances kept with the RBI but earn nothing on SLR.
III. Both CRR and SLR are calculated as a percentage of Net Demand and Time Liabilities (NDTL).
IV. Reducing CRR and SLR releases liquidity into the banking system.
Which of the above statements are correct?
Explanation
Mandatory reserves are calculated based on the total liabilities of a bank. While cash reserves must be kept with the central bank without interest, liquidity reserves can be held in gold or government securities. Reducing these requirements provides banks with more funds to lend. However, the central bank does not pay interest on the cash portion of these mandatory reserves.
Q217. Which of the following is the most appropriate description of the transmission of monetary policy?
Explanation
This concept describes how modifications in the central bank’s benchmark rates eventually influence the interest rates charged by commercial banks. Efficient transmission ensures that the intended policy stance reached by the central bank actually reaches the end consumers and businesses. It is a critical link in the effectiveness of monetary policy in managing economic growth and controlling price levels.
Q218. Identify the incorrect pair regarding the roles of the Reserve Bank of India from the options provided below.
Explanation
The central bank performs various vital functions, including managing public debt, providing emergency liquidity to banks, and safeguarding foreign exchange reserves. These roles ensure financial stability and support government operations. However, the formulation of fiscal policy and the preparation of the annual budget are the exclusive responsibilities of the central government, specifically the finance ministry, rather than the central bank.
Q219. Fiscal policy is primarily concerned with which of the following?
Explanation
Fiscal policy involves the strategic use of government spending and taxation to influence macroeconomic conditions. By adjusting these levels, the government can manage aggregate demand, promote economic growth, and ensure social welfare. It serves as a tool for stabilization during economic fluctuations and for achieving long-term developmental goals. This policy is distinct from the central bank’s management of money.
Q220. Consider the following statements regarding an Expansionary Fiscal Policy:
I. It is typically used during an economic recession or slowdown.
II. It involves increasing government spending.
III. It involves reducing tax rates to leave more disposable income with consumers.
IV. It generally leads to a reduction in the government’s fiscal deficit.
V. It aims to stimulate aggregate demand in the economy.
Which of the above statements are correct?
I. It is typically used during an economic recession or slowdown.
II. It involves increasing government spending.
III. It involves reducing tax rates to leave more disposable income with consumers.
IV. It generally leads to a reduction in the government’s fiscal deficit.
V. It aims to stimulate aggregate demand in the economy.
Which of the above statements are correct?
Explanation
This policy approach aims to boost economic activity during downturns by increasing government spending and lowering tax rates. These actions put more money into the hands of consumers and businesses, thereby stimulating aggregate demand. While effective for growth, such measures typically lead to an increase in the budget deficit because expenditures often rise faster than the revenues collected by government.Answer key for these questions
| Q | Correct answer |
|---|---|
| 211 | (c) Maintaining retail inflation within a statutory target range |
| 212 | (d) Reserve Bank of India Act, 1934 |
| 213 | (a) A-iv, B-ii, C-i, D-iii |
| 214 | (b) Increasing the cost of borrowing to dampen aggregate demand in the economy |
| 215 | (b) Managing government’s tax revenue targets |
| 216 | (b) I, III and IV only |
| 217 | (c) Process where policy rate changes impact bank lending rates |
| 218 | (d) Fiscal Policy Formulator - Designs and implements the Union Budget |
| 219 | (c) Managing government revenue and expenditure to affect the economy |
| 220 | (c) I, II, III and V 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.