introduction to indian economy section 4 MCQ Questions & Answers Detailed Explanation
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The following question based on Introduction to Indian Economy topic of indian economy mcq
- Basis points: increase in interest rates in percentage terms.
- Repo rate: the rate at which commercial banks borrow from the RBI by selling their securities or financial assets to the RBI for a long period of time.
- Reverse repo rate: rate of interest at which the central bank borrows funds from other banks for a short duration.
- Cash reserve ratio: minimum percentage of cash deposits that banks must keep with themselves to avoid liquidity issues.
(a) (ii), (iii) & (iv)
(b) (ii) & (iv)
(c) (i) & (ii)
(d) (iii) & (iv)
The correct answers to the above question in:
Answer: (b)
Basis points: It is the increase in interest rates in percentage terms. For instance, if the interest rate increases by 50 basis points (bps), then it means that the interest rate has been increasing by 50%. One percentage point is broken down into 100 basis points. Therefore, an increase from 2% to 3% is an increase of one percentage point or 100 basis points.
Repo rate: Repo rate is the policy rate and is part of RBI’s Liquidity Adjustment Facility (LAF). It is the rate at which commercial banks borrow from the RBI by selling their securities or financial assets to the RBI for a short period of time. It comes with an agreement that the sold securities will be repurchased by the commercial banks from the RBI at a future date at a predetermined price. The repo rate is used by the central bank to increase liquidity in the system.
Reverse repo rate: Reverse Repo Rate is also a part of LAF. It is the rate of interest at which the central bank borrows funds from other banks for a short duration. The banks deposit their short term excess funds with the central bank and earn interest on it. This rate is used by the central bank to absorb liquidity from the economy. Generally, it is one per cent less than the Repo rate. Bank rate: The only way the bank rate is different from the repo rate is that the bank rate is the rate at which banks borrow money from the central bank without any sale of securities. It is generally for a longer period of time.
Cash reserve ratio: CRR is the minimum percentage of cash deposits that banks must keep with the central bank. The current rate is 4%, which means for a cash deposit of `100, the bank has to park 4 rupees, with the central bank.
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Read more introduction Based Indian Economy Questions and Answers
Question : 1
NABARD stands for
a) National Bank for agriculture and rural
b) National business for accounting and Reviewing
c) National Bank for aeronautics and radar development
d) National bureau for air and road transport
Answer »Answer: (a)
NABARD stands for National Bank for Agriculture and Rural Development. It is an apex development bank in India having headquarters based in Mumbai (Maharashtra).
It was established on 12 July 1982 and accredited with matters credit for agriculture and other economic activities in rural areas in India.
Question : 2
Which of the following statements are not correct about ‘bond’ ?
- It is an instrument of raising long-term capital.
- Bond-issuing body pays interest on it which is known as ‘contango rate’.
- It may be issued by governments and private companies both.
- ‘Bonds’ and ‘debantures’ are different in nature.
a) Neither of the above
b) 2 only
c) 1 and 3 only
d) All are true
Answer »Answer: (b)
The interest paid on bonds is known as ‘coupon’ or ‘coupon rate’. Bonds and debentures both are the instruments of raising long-term capital but while the former is supported by collateral in the former is supported by collateral in the form of immovable property, the latter are not.
Question : 3
The process of curing inflation by reducing money supply is called
a) Down–pull inflation
b) Reflation
c) Disinflation
d) Cost-push inflation
Answer »Answer: (c)
The process of curing inflation by reducing money supply is called disinflation. Disinflation is a decrease in the rate of inflation – a slowdown in the rate of increase of the price level of goods and services in GDP. Disinflation occurs when the increase in the “consumer price level” slows down from the previous period when the prices were rising.
Question : 4
NREGP is the abbreviated form of
a) National Rural Educational Guarantee Programme
b) National Rural Employment Guarantee Programme
c) National Rapid Educational Guarantee Programme
d) National Rapid Employment Guarantee Programme
Answer »Answer: (b)
The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is an Indian job guarantee scheme, enacted by legislation on August 25, 2005.
The scheme provides a legal guarantee for one hundred days of employment in every financial year to adult members of any rural household willing to do public work-related unskilled manual work at the statutory minimum wage of Rs.120.
This act was introduced with an aim of improving the purchasing power of the rural people, primarily semi or un-skilled work to people living in rural India, whether or not they are below the poverty line. The law was initially called the National Rural Employment Guarantee Act (NREGA) but was renamed on 2 October 2009
Question : 5
Which of the following is/are the steps which will result in containing inflation?
- Increasing Cash Reserve Ratio (CRR)
- Decreasing Statutory Liquidity Ratio (SLR)
- Permitting central/state agencies to import duty free pulses and sugar.
a) 2 and 3
b) 1 and 3
c) 1 only
d) 1, 2 and 3
Answer »Answer: (b)
In order to curb inflation, if CRR is increased, then it may take liquidity from markets as banks will have to deposit more money with RBI. Moreover, inflation may also be curbed by permitting central/state agencies to import duty-free pulses and sugar.
However, decreasing SLR will leave more money to banks to give loans, which in turn will lead to inflation.
Question : 6
Maruti cars are mainly based on
a) Korean Technology
b) Japanese Technology
c) Russian Technology
d) German Technology
Answer »Answer: (b)
Maruti Udyog Ltd. came into being in the year 1982 when Suzuki Motor Corporation (SMC) entered into a joint venture with the Government of India to manufacture fuel-efficient passenger cars under the brand name Maruti.
Maruti cars, based on the Japanese philosophy for super-efficient manufacturing, brought about the renaissance of the Indian components industry.
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introduction to indian economy section 14
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