ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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OMO
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Reserve Requirements
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Discount Rate
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Balance Accounts
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Detailed explanation-1: -Out of the given options, deficit financing is not a monetary tool.
Detailed explanation-2: -Central banks have four main monetary policy tools: the reserve requirement, open market operations, the discount rate, and interest on reserves.
Detailed explanation-3: -The correct answer is option 2, i.e., MSP. MSP is NOT an instrument of RBI’s Monetary Policy.
Detailed explanation-4: -One of the most effective instruments of monetary policy is the bank rate. A bank rate is essentially the rate at which the RBI lends money to commercial banks without any security or collateral. It is also the standard rate at which the RBI will buy or discount bills of exchange and other such commercial instruments.
Detailed explanation-5: -Detailed Solution. Monetary policy is the macroeconomic policy laid down by the central bank. It is used to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.