UPSC Prelims 2015 · GS Paper I
Question 86: Economy and Social Development
With reference to Indian economy, consider the following :
- 1.Bank rate
- 2.Open market operations
- 3.Public debt
- 4.Public revenue
Which of the above is/are component/components of Monetary Policy?
AnswerUPSC’s answer is (c).
Monetary policy is the RBI's management of money supply and credit through instruments such as the bank rate, open market operations, the cash reserve ratio, the statutory liquidity ratio and the repo rate. So the bank rate and open market operations belong to it. Public debt and public revenue are tools of fiscal policy, handled by the government's budget.
- 1. The bank rate is a monetary policy instrument.
- 2. Open market operations are a monetary policy instrument.
- 3. Public debt is part of fiscal policy.
- 4. Public revenue is part of fiscal policy.
How you could have got this
- If you were sure statement 1 is correct, (b) goes: it leaves 1 out.
What you needed to know: The bank rate is a monetary policy instrument.
- Then, if you were sure statement 2 is correct, (a) and (d) go: each of them leaves 2 out.
What you needed to know: Open market operations are a monetary policy instrument.
Only (c) is left. You didn’t need statements 3 or 4.
Which options go is worked out from UPSC’s key and the options, not by a model.
Why each option is right or wrong
- (a) Incomplete: open market operations are also a monetary policy tool.
- (b) Wrong: public debt and public revenue are fiscal policy components.
- (c) Correct: the bank rate and open market operations are monetary policy tools.
- (d) Wrong: public debt and public revenue are fiscal tools.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2015, General Studies Paper I, Series A. The paper on upsc.gov.in.