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RBI's Monetary Policy Tools

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Questions and Answers

What is the primary purpose of open market operations?

To influence the money supply in the economy (correct)
To manage the foreign exchange rate
To regulate the interest rates in the economy
To stimulate economic growth

What happens to the money supply when the RBI increases the reserve ratio?

It becomes unpredictable
It remains unchanged
It increases
It decreases (correct)

What is the name of the tool used by the RBI to persuade commercial banks to discourage or encourage lending?

Quantitative easing
Open Market Operations
Margin requirement
Moral suasion (correct)

What is the effect on lending by banks when the RBI changes the reserve ratio?

It decreases (A) Signup and view all the answers

What is the purpose of the RBI buying government bonds in the open market?

To increase the money supply (C) Signup and view all the answers

What is the name of the tool used by the RBI to control the extent of money supply by changing the bank rate?

Quantitative tool (D) Signup and view all the answers

What is the effect of a cheque issued by the RBI on the money supply?

It increases the money supply (A) Signup and view all the answers

What is the result of the RBI selling a bond to private individuals or institutions?

It reduces the quantity of reserves and hence the money supply (D) Signup and view all the answers

What is the characteristic of outright open market operations?

It is permanent in nature (C) Signup and view all the answers

What is the purpose of changing the bank rate by the RBI?

To decrease the money supply (C) Signup and view all the answers

What is the rate at which the RBI lends money to commercial banks?

Bank rate (B) Signup and view all the answers

What is the purpose of repo and reverse repo operations conducted by the RBI?

To influence the money supply (C) Signup and view all the answers