ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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changes in foreign exchange rate
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changes in interest rate
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changes in money supply
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changes in tax rates
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Detailed explanation-1: -Out of the given options, deficit financing is not a monetary tool.
Detailed explanation-2: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations. In 2008, the Fed added paying interest on reserve balances held at Reserve Banks to its monetary policy toolkit.
Detailed explanation-3: -Detailed Solution. The correct answer is option 2, i.e., MSP. MSP is NOT an instrument of RBI’s Monetary Policy.
Detailed explanation-4: -The Federal Budget deficit. The budget deficit is determined directly by fiscal policy, not monetary policy. The other three solutions are directly impacted by monetary policy. Monetary policy does affect the budget deficit through its effects on interest rates, but this is an indirect effect.