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Question 1 of 10
1. Question
2 points
When RBI increases the sale of government securities through open market
operations, which of the following is most likely to happen?
Correct
Ans c
Open Market operations are the sale or purchase of government securities by RBI in the
open market (secondary bond/debt market) to banks/financial institutions for injection and
absorption of durable liquidity (money supply) in the economy.
Hence, in the above given case, an increase in the sale of G-secs indicates that the RBI is
following a tight or contractionary money policy to reduce the inflation in the economy.
Incorrect
Ans c
Open Market operations are the sale or purchase of government securities by RBI in the
open market (secondary bond/debt market) to banks/financial institutions for injection and
absorption of durable liquidity (money supply) in the economy.
Hence, in the above given case, an increase in the sale of G-secs indicates that the RBI is
following a tight or contractionary money policy to reduce the inflation in the economy.
Question 2 of 10
2. Question
2 points
With reference to India, consider the following:
1. Prompt Corrective Action
2. Creation of Payments Infrastructure Development Fund (PIDF)
3. Lead Banks Scheme
4. Banking Regulation (Amendment) Act, 2020
Which of the above can be considered as step(s) taken to reduce the Non-Performing Assets
in the banking sector of India?
Correct
Ans d
A "Payments Infrastructure Development Fund (PIDF)" has been created by RBI in June,
2020. The purpose of this fund will be to encourage Merchants/Retailers, so that more and
more merchants and retailers start using the Point of Sale (PoS) Infrastructure in
underserved areas like Tier 3/4/5/6 cities and in eastern States.
The Lead Bank Scheme was introduced by RBI in December 1969. The Scheme aims at
coordinating the activities of banks and other developmental agencies through various fora
in order to achieve the objective of enhancing the flow of bank finance to priority sector and
other sectors and to promote banks’ role in overall development of the rural sector.
Incorrect
Ans d
A "Payments Infrastructure Development Fund (PIDF)" has been created by RBI in June,
2020. The purpose of this fund will be to encourage Merchants/Retailers, so that more and
more merchants and retailers start using the Point of Sale (PoS) Infrastructure in
underserved areas like Tier 3/4/5/6 cities and in eastern States.
The Lead Bank Scheme was introduced by RBI in December 1969. The Scheme aims at
coordinating the activities of banks and other developmental agencies through various fora
in order to achieve the objective of enhancing the flow of bank finance to priority sector and
other sectors and to promote banks’ role in overall development of the rural sector.
Question 3 of 10
3. Question
2 points
Which of the following event(s) is/are most likely to happen as a consequence(s) of a
liquidity trap in the economy?
1. People keep their funds in fixed and demand deposits instead of investing in bonds
and other financial instruments
2. The Central banks will start to increase the repo rates to make the money market
more liquid
Select the correct answer using the codes given below:
Correct
Ans d
A liquidity trap is when monetary policy becomes ineffective due to very low interest rates
combined with consumers who prefer to save rather than invest in higher-yielding bonds or
other investments.
In case of liquidity trap, people keep their funds in normal savings accounts (demand
deposits) and do not want to lock their investment in fixed deposits at a very low interest
rate.
Incorrect
Ans d
A liquidity trap is when monetary policy becomes ineffective due to very low interest rates
combined with consumers who prefer to save rather than invest in higher-yielding bonds or
other investments.
In case of liquidity trap, people keep their funds in normal savings accounts (demand
deposits) and do not want to lock their investment in fixed deposits at a very low interest
rate.
Question 4 of 10
4. Question
2 points
Consider the following statements:
1. The concept of Helicopter money is used to boost demand in the economy.
2. Negative interest rates act as liability for the depositor and assets for the borrower.
Which of the statements given above is/are correct?
Correct
Ans c
Both options are correct.
Incorrect
Ans c
Both options are correct.
Question 5 of 10
5. Question
2 points
Consider the following statements with respect to the Small Finance Banks:
1. The small finance banks are required to extend more than half of its total credit to
the sectors eligible for classification as priority sector lending (PSL)
2. At least 50% of its loan portfolio should constitute loans and advances of up to Rs. 25
lakhs
3. Unlike Payments Banks, Small Finance banks can accept all types of deposits
Select the incorrect statements by using the codes given below:
Correct
Ans d
All statements are correct.
Incorrect
Ans d
All statements are correct.
Question 6 of 10
6. Question
2 points
If everyone started withdrawing their time deposits with banks due to low returns, the
immediate effect on aggregate money supply in the economy will be
Correct
Ans d
M1 = Currency with the Public + Demand deposits of public with banks
M2 = M1 + Savings Deposits with Post Office Savings Bank
M3 = M1 + Time deposits of public with banks
M4 = M3 + Total deposits with Post Office Savings Bank
Hence, even if the time deposits are withdrawn (part of M3) there will be no immediate
effect on money supply as the money withdrawn will be counted as the currency held with
the public (part of M1).
Incorrect
Ans d
M1 = Currency with the Public + Demand deposits of public with banks
M2 = M1 + Savings Deposits with Post Office Savings Bank
M3 = M1 + Time deposits of public with banks
M4 = M3 + Total deposits with Post Office Savings Bank
Hence, even if the time deposits are withdrawn (part of M3) there will be no immediate
effect on money supply as the money withdrawn will be counted as the currency held with
the public (part of M1).
Question 7 of 10
7. Question
2 points
Consider the following with reference to Indian Tax System:
1. Corporation Tax
2. Dividends Distribution Tax
3. Minimum Alternative Tax
4. Stamp Duty
Which of the following is/are direct tax(es) applicable to private sector companies in India?
Correct
Ans c
When a company announces dividends, it has to pay tax (DDT) on the dividend which is to
be distributed to the owners and the owners also pay tax (as per their income tax slab) on
the dividend received. However, from Assessment Year 2021-22, the domestic company
isn't required to pay dividend distribution tax on any amount declared, distributed or paid
by such company by way of dividend. Dividends received from domestic companies are
taxable in the hands of shareholders.
Stamp duty is a legal tax payable in full and acts as evidence for any sale or purchase of a
property. It is payable under Section 3 of the Indian Stamp Act, 1899. Although it is
applicable to the companies, it is not a direct tax.
Incorrect
Ans c
When a company announces dividends, it has to pay tax (DDT) on the dividend which is to
be distributed to the owners and the owners also pay tax (as per their income tax slab) on
the dividend received. However, from Assessment Year 2021-22, the domestic company
isn't required to pay dividend distribution tax on any amount declared, distributed or paid
by such company by way of dividend. Dividends received from domestic companies are
taxable in the hands of shareholders.
Stamp duty is a legal tax payable in full and acts as evidence for any sale or purchase of a
property. It is payable under Section 3 of the Indian Stamp Act, 1899. Although it is
applicable to the companies, it is not a direct tax.
Question 8 of 10
8. Question
2 points
Consider the following transactions:
1. Investment in Mutual Funds
2. Buying an immovable property which is under construction
3. Transfer or shares and debentures
The stamp duty will be applicable on which of the given transaction(s)?
Correct
Ans c
All Statements are correct
Incorrect
Ans c
All Statements are correct
Question 9 of 10
9. Question
2 points
Which of the given statements is not correct regarding the tax system of India?
1. According to the Article 265, no tax should be levied/collected except the authority
of the law
2. When the government reduces taxes during the recession period, it is said to be
following a procyclical fiscal policy
3. The Goods and Services tax (GST) is a consumption and destination based indirect
tax
4. GST being a value added tax, it's collection will increase with the increase in the
Nominal Gross Domestic Product (GDP)
Select the correct answer using the codes given below:
Correct
Ans b
The pro-cyclical fiscal policy goes in line with the current mood of the business cycle i.e.,
amplifying them. For example, during a recession, the government reduces spending and
increases taxes, leading to further slowdown in the economy. This kind of fiscal policy is
dangerous and brings instability in the economy.
When the government reduces taxes during a recession it follows a counter-cyclical fiscal
policy.
Incorrect
Ans b
The pro-cyclical fiscal policy goes in line with the current mood of the business cycle i.e.,
amplifying them. For example, during a recession, the government reduces spending and
increases taxes, leading to further slowdown in the economy. This kind of fiscal policy is
dangerous and brings instability in the economy.
When the government reduces taxes during a recession it follows a counter-cyclical fiscal
policy.
Question 10 of 10
10. Question
2 points
Which of the following are the functions of the Reserve Bank of India?
1. The RBI shall recommend the denominational values of the notes as well as the
discontinuance of issue of notes.
2. RBI sells the foreign currency in the foreign exchange market when its supply
decreases in the economy and vice-versa.
3. Setting of Inflation targeting.
4. Maintaining price stability in the economy.
Select the correct answer using the codes given below:
Correct
Ans c
To maintain price stability, inflation needs to be controlled. The Government of India sets an
inflation target for every five years. RBI has an important role in the consultation process
regarding inflation targeting. The current inflation-targeting framework in India is flexible in
nature. The amended RBI Act provides for the inflation target to be set by the Government
of India, in consultation with the Reserve Bank, once every five years.
Incorrect
Ans c
To maintain price stability, inflation needs to be controlled. The Government of India sets an
inflation target for every five years. RBI has an important role in the consultation process
regarding inflation targeting. The current inflation-targeting framework in India is flexible in
nature. The amended RBI Act provides for the inflation target to be set by the Government
of India, in consultation with the Reserve Bank, once every five years.
