{"id":1964,"date":"2024-03-30T14:26:30","date_gmt":"2024-03-30T08:56:30","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1964"},"modified":"2024-04-03T07:07:51","modified_gmt":"2024-04-03T01:37:51","slug":"q-with-reference-to-indian-economy-consider-the-following","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-with-reference-to-indian-economy-consider-the-following","title":{"rendered":"Q.\u00a0With reference to Indian economy, consider the following:"},"content":{"rendered":"\n
    \n
  1. Bank rate<\/li>\n\n\n\n
  2. Open market operations<\/li>\n\n\n\n
  3. Public debt<\/strong><\/li>\n\n\n\n
  4. Public Revenue<\/li>\n<\/ol>\n\n\n\n

    Which of the above is\/are component\/components of Monetary Policy?<\/p>\n\n\n\n

      \n
    • 1 only<\/li>\n\n\n\n
    • 2, 3 and 4<\/li>\n\n\n\n
    • 1 and 2<\/li>\n\n\n\n
    • 1, 3 and 4<\/li>\n<\/ul>\n\n\n\n
      \n

      Answer:<\/strong> (c) 1 and 2<\/strong><\/p>\n<\/blockquote>\n\n\n\n

      Monetary Policy<\/strong>:<\/h5>\n\n\n\n
        \n
      • Monetary policy<\/strong> refers to the set of actions and measures implemented by a country\u2019s central bank to regulate and control the money supply, credit availability, and interest rates in the economy<\/strong>.<\/li>\n\n\n\n
      • The primary goal of monetary policy is to\u00a0achieve specific macroeconomic objectives, such as maintaining price stability, promoting economic growth, and ensuring financial stability<\/strong>.\n
          \n
        • Interest rate changes and adjustments to bank reserve requirements are examples <\/strong>of monetary policy strategies.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
        • It is the demand side economic policy<\/strong> used to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.<\/li>\n\n\n\n
        • Monetary policy in India:<\/strong>\n
            \n
          • In India, the monetary policy of the RBI is aimed at\u00a0managing the quantity of money<\/strong>\u00a0in order to meet the requirements of different sectors of the economy and to increase the pace of\u00a0economic growth.<\/strong>\n
              \n
            • For example<\/strong>, liquidity is crucial to stimulate growth for an economy. The RBI depends on monetary policy to maintain liquidity.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
            • The RBI implements the monetary policy through open market operations<\/strong>\u00a0(OMOs),\u00a0bank rate policy, reserve system, credit control policy, moral persuasion, etc.<\/strong>\n
                \n
              • For example<\/strong>, the RBI introduces the money in the economy and cuts the interest rate by buying bonds through OMOs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
              • The use of any of these tools will result in adjustments in interest rate or the money supply<\/strong> in the economy.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
              • Classification of Monetary Policy:<\/strong>\n
                  \n
                • Monetary policy can be classified as expansionary <\/strong>(or accommodative) and contractionary<\/strong> (or tight) in nature.<\/li>\n\n\n\n
                • Accommodative monetary policy<\/strong>\u00a0is triggered to encourage more spending from consumers and businesses by increasing money supply and reducing interest rates.\n
                    \n
                  • When firms can easily borrow money, they have more funds to expand operations and hire more workers, resulting in a lower unemployment rate.<\/strong><\/li>\n\n\n\n
                  • On the other hand, if the money supply is loosened over an extended period of time, there will be too much money chasing too few goods and services, resulting in inflation<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                  • To avoid inflation,<\/strong> most central banks rotate between accommodating and tight monetary policy (decreasing the money supply and raising interest rates) to varied degrees in order to promote growth while keeping inflation under control.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
                    Instruments of Monetary Policy<\/strong>:<\/h6>\n\n\n\n
                      \n
                    • Liquidity Adjustment Facility (LAF): <\/strong>It allows banks to borrow money through repurchase agreements (repos) or to make loans to the RBI through reverse repo agreements.<\/li>\n\n\n\n
                    • Repo Rate:<\/strong> The repo rate is the rate at which the RBI lends money to banks to meet their short-term funding needs.<\/li>\n\n\n\n
                    • Reverse Repo Rate:<\/strong> The interest rate at which the Reserve Bank absorbs liquidity from banks against the collateral of eligible government securities under the LAF.<\/li>\n\n\n\n
                    • Statutory Liquidity Ratio (SLR):<\/strong> It is the minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities.<\/li>\n\n\n\n
                    • Marginal Standing Facility (MSF) Rate:<\/strong> It is the penal rate at which banks can borrow, on an overnight basis, from the RBI by dipping into their SLR portfolio.<\/li>\n\n\n\n
                    • Bank Rate: <\/strong>The Bank Rate acts as the penal rate charged on banks for shortfalls in meeting their reserve requirements (cash reserve ratio and statutory liquidity ratio).<\/li>\n\n\n\n
                    • Cash Reserve Ratio (CRR): <\/strong>CRR is a percentage of total deposits that the banks have to maintain as liquid cash with the RBI.<\/li>\n\n\n\n
                    • Open Market Operations (OMOs):<\/strong> These include outright purchase\/sale of government securities by the RBI for injection\/absorption of durable liquidity in the banking system.<\/li>\n\n\n\n
                    • Corridor:<\/strong> The corridor for the daily movement in the weighted average call money rate is determined by the MSF rate and the reverse repo rate.<\/li>\n\n\n\n
                    • Market Stabilisation Scheme (MSS)<\/strong>:\n
                        \n
                      • Market Stabilisation Scheme (MSS) is a monetary management tool that was introduced in 2004.<\/li>\n\n\n\n
                      • Short-term government securities and treasury bills are sold to absorb longer-term surplus liquidity resulting from large capital inflows.<\/li>\n\n\n\n
                      • The money raised in this manner is kept in a separate government account of the Reserve Bank.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                        Which of the above is\/are component\/components of Monetary Policy? Answer: (c) 1 and 2 Monetary Policy: Instruments of Monetary Policy:<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[58],"class_list":["post-1964","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-58"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":58,"label":"2015"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1964","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1964"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1964\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1964"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1964"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1964"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1964"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}