Reserve Bank of India & Monetary Policy

Statement 1 is correct. As per the data given in the Economic Survey 2019-2020, the weightage of food in the Consumer Price Index (CPI) Combined is 45.9% as compared to 24.4% in Wholesale Price Index (WPI). Statement 2 is correct. The CPI measures the average change in prices over time that consumers pay for a basket of goods and services, commonly known as inflation, whereas WPI does not measure the average change in prices. Statement 3 is incorrect. In April 2014, the RBI adopted the Consumer Price Index (CPI) as its key measure of inflation. Hence, option A is the correct answer.

Expansionary Monetary Policy aims to stimulate economic activity by increasing the money supply and lowering interest rates. Statement 1 is incorrect. Cut and optimize the Statutory Liquidity Ratio: This aligns with expansionary policy as it allows banks to lend more. Statement 2 is correct. Increase the Marginal Standing Facility Rate: This goes against expansionary policy because it makes it more expensive for banks to borrow from RBI, potentially reducing liquidity. Statement 3 is incorrect. Cut the Bank Rate and Repo Rate: This is a key tool for expansionary policy. Lowering these rates encourages banks to borrow from RBI and lend at lower rates to businesses and individuals, stimulating economic activity. Therefore, increasing the Marginal Standing Facility Rate (MSF Rate) would contradict the goals of an expansionary monetary policy.

The immediate effect on aggregate money supply in the economy, if you withdraw Rs. 1,00,000 in cash from your Demand Deposit Account at your bank, will be “No change”. Reason: Aggregate money supply refers to the total amount of money circulating in the economy, including both cash and deposits in commercial banks. - M3 = M1 + Time Deposits with Banks Where: - M1 = Currency in circulation + Demand deposits with banks + Other deposits with the central bank When you withdraw cash from your demand deposit account, you are simply converting your deposit (which is part of the money supply) into currency (also part of the money supply). The total amount of money in the system remains the same, just the composition (ratio of cash to deposits) changes.

Statement 1 is incorrect. In terms of short-term credit delivery to the agriculture sector, Scheduled Commercial Banks (SCBs) and Regional Rural Banks (RRBs) generally deliver more credit compared to District Central Cooperative Banks (DCCBs). SCBs and RRBs have a larger network and resources to provide credit to the agriculture sector. Statement 2 is correct. One of the primary functions of DCCBs is indeed to provide funds to the Primary Agricultural Credit Societies (PACS). DCCBs act as the intermediary between the Reserve Bank of India (RBI) and PACS, facilitating the flow of credit from the central bank to the grassroots level through cooperative credit institutions. Hence, option B is the correct answer.

* Service area approach (SAA) is an improved version of area approach of Lead Bank Scheme. * Under SAA plan, each commercial bank / RRB branch in the rural and semi-urban area is designated to serve 15 to 25 villages for the planned and orderly development of rural and semi-urban areas. * The designated branch of a bank has to meet the banking needs of its service area vis--vis forge effective linkages between bank credit, production, productivity, and increase in income levels of the villages.

Money multiplier: It refers to the extent to which commercial banks can create new money based on deposits. It's calculated as the reciprocal of the reserve ratio (required reserves divided by total deposits). Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): These are regulatory tools used by the central bank to control the money supply. Higher CRR and SLR: Banks are required to hold a larger portion of deposits as reserves with the central bank. This reduces the amount of money available for lending, thus decreasing the money multiplier. Lower CRR and SLR: Banks can lend out a larger portion of deposits, increasing the money multiplier. Banking habit: When people deposit more money in banks, it increases the pool of funds available for lending. This allows banks to create more new money through the lending process, leading to a higher money multiplier. Population growth: While population growth can lead to higher demand for money, it doesn't directly affect the money multiplier mechanism itself.

To stop the slide of the Rupee (depreciation), the RBI/Government needs to increase the inflow of foreign currency (USD) or decrease the outflow. Option (a), (b), and (c) are likely measures: They either increase the supply of dollars in the Indian market or reduce the demand for dollars, which helps stabilize the Rupee. Option (d) is NOT a likely measure: An expansionary monetary policy usually involves lowering interest rates. When interest rates fall, the "carry trade" becomes less attractive to foreign investors, leading to capital flight. This increases the supply of Rupee in the market and decreases its value further. To stop a slide, the RBI typically follows a contractionary (dear money) policy to attract capital and curb inflation.

The Inter-Creditor Agreement (ICA) signed by Indian banks and financial institutions is a mechanism to expedite the resolution of stressed assets, particularly in cases of consortium lending involving loans of Rs. 50 crore or more.

Statement 1 is Correct (Data storage in India): This is the core requirement of the directive. It mandates that the entire payment system data be stored in systems located only in India. This aims to improve data security and regulatory oversight. Statement 2 is Incorrect (Public sector ownership): The directive doesn't specify ownership requirements for the data storage systems. Private companies can also store data as long as the systems are located within India. Statement 3 is Incorrect (Audit report submission): The directive des not have reporting requirements for system audits to the Comptroller and Auditor General of India (CAG) which typically audits government entities.

Legal tender refers to money that is legally recognized for the payment of debts. This means that if a creditor offers you legal tender to settle a debt, you are legally obligated to accept it. Hence, option 'B' is the correct answer.