Question map
Not attempted Correct Incorrect ★ Bookmarked
Loading…
Q47 (IAS/2020) Economy › Money, Banking & Inflation › Monetary policy tools Official Key

If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do ? 1. Cut and optimize the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate Select the correct answer using the code given below :

Result
Your answer: —  ·  Correct: B
Explanation

The correct answer is Option 2. An expansionist monetary policy (Easy Money Policy) aims to increase liquidity in the economy to stimulate growth. This is achieved by making credit cheaper and more accessible.

  • Statement 1: RBI would cut the Statutory Liquidity Ratio (SLR) to leave more funds with banks for lending, thereby increasing money supply.
  • Statement 2: Increasing the Marginal Standing Facility (MSF) Rate makes borrowing from the RBI more expensive for banks. This is a contractionary measure used to reduce liquidity. Therefore, the RBI would not do this during an expansionist phase.
  • Statement 3: Cutting the Bank Rate and Repo Rate reduces the cost of borrowing for commercial banks, encouraging them to lower lending rates for consumers, which aligns with expansionist goals.

Since the question asks what the RBI would not do, only Statement 2 is correct.

How others answered
Each bar shows the % of students who chose that option. Green bar = correct answer, blue outline = your choice.
Community Performance
Out of everyone who attempted this question.
42%
got it right
PROVENANCE & STUDY PATTERN
Guest preview
Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do ? 1. Cut and optimize the Statutory L…
At a glance
Origin: From standard books Fairness: High fairness Books / CA: 10/10 · 0/10
You're seeing a guest preview. The Verdict and first statement analysis are open. Login with Google to unlock all tabs.

This is a foundational 'Sitter' question. It tests the core logic of Monetary Policy: Expansionary = Lower Rates/Ratios = More Money Supply. The only challenge is the 'NOT' in the question stem, which is a classic attention trap, not a knowledge gap.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Would the Reserve Bank of India (RBI), when pursuing an expansionary monetary policy, cut and optimize the Statutory Liquidity Ratio (SLR)?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > CASH RESERVE RATIO (CRR) vs STATUTORY LIQUIDITY RATIO (SLR) > p. 169
Presence: 4/5
“Both the reserve requirement tools are used by the Reserve Bank of India (RBI) to regulate the supply of money in the economy. However: CRR is maintained as a percentage of the Demand and Time Liabilities (DTL), whereas SLR is maintained as a percentage of the Net Demand and Time Liabilities (NDTL).”
Why this source?
  • Identifies CRR and SLR as reserve-requirement tools the RBI uses to regulate the money supply.
  • Implies adjustments in these ratios alter available bank funds and thus monetary conditions.
Macroeconomics (NCERT class XII 2025 ed.) > Chapter 3: Money and Banking > Cash Reserve Ratio (CRR) = Percentage of deposits which a bank must keep as cash reserves with the bank. > p. 40
Presence: 5/5
“Apart from the CRR, banks are also required to keep some reserves in liquid form in the short term. This ratio is called Statutory Liquidity Ratio or SLR. In our fictional example, suppose CRR = 20 per cent, then with deposits of Rs 100, our bank will need to keep Rs 20 (20 per cent of 100) as cash reserves. Only the remaining amount of deposits, i.e., Rs 80 (100 – 20 = 80) can be used to give loans. The statutory requirement of the reserve ratio acts as a limit to the amount of credit that banks can create.”
Why this source?
  • Explains SLR limits the amount of deposits banks can use to give loans, directly constraining credit creation.
  • Lowering such a constraint would increase banks' capacity to lend, consistent with expansionary aims.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 63
Presence: 3/5
“is called CRR. "In terms of Section 42(1) of the RBI Act, 1934 the Reserve Bank, having regard to the needs of securing the monetary stability in the country, prescribes the CRR for SCBs without any floor or ceiling rate". Statutory Liquidity Ratio (SLR) The amount of reserves that the scheduled commercial banks are required to maintain with themselves on a daily basis in safe and liquid assets such as government securities, gold and cash with respect to their NDTL is called SLR. Excess CRR balances are also treated as liquid assets for the purpose of SLR i.e., SLR can be maintained as cash balance with RBI.”
Why this source?
  • Defines SLR as reserves held in liquid assets against NDTL, clarifying its mechanical role in bank reserves.
  • Shows that changing SLR changes the portion of deposits locked in liquid assets versus available for lending.
Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

Login with Google to unlock all statements.

Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

Login with Google to unlock all statements.

How to study

This tab shows concrete study steps: what to underline in books, how to map current affairs, and how to prepare for similar questions.

Login with Google to unlock study guidance.

Micro-concepts

Discover the small, exam-centric ideas hidden in this question and where they appear in your books and notes.

Login with Google to unlock micro-concepts.

The Vault

Access hidden traps, elimination shortcuts, and Mains connections that give you an edge on every question.

Login with Google to unlock The Vault.

✓ Thank you! We'll review this.

SIMILAR QUESTIONS

IAS · 2017 · Q11 Relevance score: -1.78

Which of the following statements is/are correct regarding the Monetary Policy Committee (MPC) ? 1. It decides the RBI's benchmark interest rates. 2. It is a 12-member body including the Governor of RBI and is reconstituted every year. 3. It functions under the chairmanship of the Union Finance Minister. Select the correct answer using the code given below :

IAS · 2015 · Q22 Relevance score: -4.35

When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

IAS · 1995 · Q27 Relevance score: -5.01

As part of the liberalisation programme and with a view to attracting foreign exchange, the Government and the RBI have devised two schemes known as FCNR-’A’ and FCNR-’B’. Which of the following is/are true regarding these two schemes ? I. Under scheme ‘A’ RBI bears exchange rate fluctuations. II. Under scheme ‘B’, other banks are to meet out the difference in exchange rate fluctuations. III. Both the schemes stand withdrawn now. IV. Only scheme ‘A’ has been withdrawn. Select the correct answer from the codes given below : Codes :

IAS · 2012 · Q100 Relevance score: -5.20

The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the following? 1. Other banks retain their deposits with the RB I. 2. The RBI lends funds to the commercial banks in times of need. 3. The RBI advises the commercial banks on monetary matters. Select the correct answer using the codes given below:

CDS-I · 2024 · Q42 Relevance score: -5.22

Consider the following statements regarding instruments of monetary policy : 1. Standing deposit facility (SDF) rate was introduced in April 2022. 2. SDF rate replaced fixed reverse repo rate as the floor of the LAF corridor. Which of the statements given above is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2