Question

Find out the instruments of monetary policy in India:

(i) Margin Standing Facility Rate

(ii) Deficit Financing

(iii) Statutory Liquidity Ratio

(iv) Tax Policies

• A. (i), (ii)
• B. (i), (iii)
• C. (i), (ii), (iii)
• D. (i), (ii), (iv)

Answer 1

Answer:

B. (i), (iii)

The instruments of monetary policy in India are (i) Margin Standing Facility Rate and (iii) Statutory Liquidity Ratio.

Therefore, the correct combination is (i) and (iii).

• Monetary Policy Instruments (Controlled by the Reserve Bank of India - RBI):

  • (i) Marginal Standing Facility (MSF) Rate: A quantitative tool. It is the window for banks to borrow overnight funds from the RBI against approved government securities.

  • (iii) Statutory Liquidity Ratio (SLR): A quantitative tool. It is the minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold, or other securities before providing credit to customers.

• Fiscal Policy Instruments (Controlled by the Government of India):

  • (ii) Deficit Financing: A fiscal tool where the government borrows money or prints currency to bridge the gap between its expenditures and revenues.

  • (iv) Tax Policies: Direct and indirect taxation structures used by the government to manage revenue, redistribution, and economic growth.