Q. Consider the following:
Discount Rate
Government Spending
Reserve Requirements
Open Market Operations
Which among the above are considered to be major instruments of monetary policy for regulating the economy ?
Answer: 1,3, 4
Notes:
- Discount Rate - Correct. The discount rate is the interest rate the central bank charges on loans it gives to commercial banks. Lowering this rate allows banks to borrow more and expand lending.
- Government Spending - Incorrect. Fiscal policy tool, not a monetary policy instrument.
- Reserve Requirements - Correct. The fraction of deposits that banks are required to hold as reserves. Lowering this ratio increases lending capacity of banks.
- Open Market Operations - Correct. Buying and selling of government securities by the central bank to influence money supply and credit creation.
Above question is part of 10000+ MCQs for UPSC (Prelims) Paper-1 course in GKToday Android app.
