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Monetary Policy
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UPSC Prelims 2020 Paper-1 📅 04 Oct, 2020

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:

A
1 and 2 only
B
2 only
C
1 and 3 only
D
1, 2 and 3
Result Summary
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UPSC Prelims
2020 • 04 Oct, 2020 • Paper-1
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:
Correct Answer
2 only
Understanding Expansionist Policy: An expansionary (or dovish) monetary stance is implemented by a central bank to artificially increase market liquidity, aggre......
Ref/Book : UPSC Prelims 2020
Ref. Subject Economy
Chapter -
Ref. Topic Monetary Policy
Pg. No -
💡 Analysis & Explanation
Understanding Expansionist Policy ▼
An expansionary (or dovish) monetary stance is implemented by a central bank to artificially increase market liquidity, aggressively encourage commercial bank lending, and boost economic growth by making borrowing structurally cheaper for consumers.
Analyzing Policy Cuts ▼
Slashing the Statutory Liquidity Ratio (SLR), the Bank Rate, and the core Repo Rate instantly leaves commercial banks with more surplus cash reserves and lowers their fundamental cost of acquiring funds. These are classic, textbook expansionary moves designed to inject money.
Analyzing MSF Increase ▼
The Marginal Standing Facility (MSF) is the highly penal interest rate at which banks borrow emergency, overnight funds from the RBI. Increasing this specific rate makes borrowing inherently more expensive, which tightly constricts the money supply. This is strictly a contractionary measure.
Conclusion ▼
Therefore, increasing the MSF rate is the single action the RBI would definitely not take during an intended expansionary phase.
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