Consider the following statements: 1. The repo rate is the rate at which other banks borrow from the Reserve Bank of India. 2. A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population. Whic

examrobotsa's picture

Submitted by examrobotsa on

Q: 50 (IAS/2007)
Consider the following statements:
1. The repo rate is the rate at which other banks borrow from the Reserve Bank of India.
2. A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population.
Which of the statements given above is/are correct?

question_subject: 

Economics

question_exam: 

IAS

stats: 

0,126,157,126,6,143,8

keywords: 

{'repo rate': [0, 0, 1, 1], 'gini coefficient': [0, 0, 0, 1], 'rate': [2, 3, 13, 20], 'equal income': [0, 0, 1, 0], 'reserve bank': [1, 0, 3, 4], 'value': [0, 0, 1, 0], 'other banks': [0, 1, 1, 1]}

The correct answer is Option 1: 1 only.

Let`s analyze each statement separately:

1. The repo rate is the rate at which other banks borrow from the Reserve Bank of India.

This statement is correct. The repo rate is the rate at which commercial banks borrow funds from the central bank, which in this case is the Reserve Bank of India (RBI). When banks need short-term funds to meet their liquidity requirements, they can borrow from the RBI through repurchase agreements (repos). These repos involve the banks selling government securities to the RBI with an agreement to repurchase them at a later date, usually the next day. The interest rate at which this borrowing and repurchasing takes place is known as the repo rate. By adjusting the repo rate, the RBI can influence the liquidity in the banking system and control inflation.

2. A value of 1 for Gini Coefficient in a country implies that there is perfectly equal income for everyone in its population.

This statement is incorrect. The Gini coefficient is a measure of income inequality within a population. It ranges from 0 to 1, where 0 represents perfect equality (all individuals have the same income) and 1 represents perfect inequality (one person has all the income while others have none). Therefore, a value of 1 for the Gini coefficient would indicate extreme income inequality, not equal income for everyone.

In summary, Statement 1 is correct because it accurately describes the repo rate as the rate at which other banks borrow from the Reserve Bank of India. Statement 2 is incorrect because a Gini coefficient of 1 represents extreme income inequality, not equal income for everyone.