Question 47 from UPSC CSE 2015 - Economy

Question

With reference to the 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?

IASCODEX · Accepted Answer

Correct Option: C. 1 and 2

Strategy: Identify instruments directly managed by the central bank for regulating money supply and interest rates. Exclude fiscal policy tools like public debt and revenue to isolate the correct monetary policy instruments.

Key Info: Monetary policy refers to central bank actions aimed at managing money supply, interest rates, and credit to achieve macroeconomic objectives like price stability.

**Monetary Policy Instruments** include:

- **Bank Rate**: The rate at which the central bank lends long-term funds to commercial banks. Changes in this rate directly affect overall lending rates in the economy.
- **Open Market Operations (OMO)**: These are the purchases and sales of government securities in the open market by the central bank (RBI in India) to regulate liquidity.
- **Repo and Reverse Repo**: Short-term monetary policy tools impacting liquidity and overnight rates; part of the central bank's toolkit under broader OMOs.

**Public Debt** is government borrowing to finance fiscal deficits. **Public Revenue** is the income earned by government mainly through taxes and non-tax sources. Both are part of fiscal policy, not monetary policy. Fiscal policy is formulated and executed by the government (Ministry of Finance), not by the central bank.

In sum, the main monetary policy instruments are those directly managed by the central bank to impact liquidity, credit, and rates—such as the bank rate and OMO—whereas public debt and revenue concern government finances.

IASCODEX · Answer

Option A: 1 only

IASCODEX · Answer

Option B: 2, 3, and 4

IASCODEX · Answer

Option D: 1, 3, and 4

With reference to the Indian economy, consider the following: Bank rate Open market operations Public debt Public Revenue Which of the above is/are component/components of Monetary Policy?

With reference to the Indian economy, consider the following:

Bank rate

Open market operations

Public debt

Public Revenue
Which of the above is/are component/components of Monetary Policy?