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UPSC 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
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Not attemptedCorrect Answer: (b) 2 only
An expansionary (accommodative) monetary policy seeks to inject liquidity and lower borrowing costs. The RBI would (i) cut the Statutory Liquidity Ratio (SLR) to release funds to banks and (iii) reduce the repo and reverse-repo rates to make credit cheaper—both are expansionary steps. By contrast, (ii) raising the Marginal Standing Facility (MSF) rate makes emergency borrowing costlier and is a contractionary move, so it is the action the RBI would NOT take. Hence only statement 2 is not done → option b. ([bcom.institute](https://bcom.institute/indian-economy/expansionary-vs-contractionary-monetary-policies?utm_source=openai))
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Frequently Asked Questions
What is the correct answer to this UPSC 2020 Indian Economy question?▼
The correct answer is option (b): 2 only. Watch the detailed video explanation in our Sherlocking Prelims course on UnlockIAS.
Which year was this Monetary Policy & Money Supply question asked in UPSC Prelims?▼
This question was asked in UPSC CSE Prelims 2020, GS Paper 1, as Question 57. It falls under Indian Economy > Monetary Policy & Money Supply.
What is the difficulty level of this UPSC question?▼
This question is rated "moderate". It requires sound conceptual understanding of the topic.
How many UPSC Prelims questions have been asked from Monetary Policy & Money Supply?▼
UPSC has asked 27 questions from Monetary Policy & Money Supply (under Indian Economy) across multiple years. Visit the topic page to see the full list and year-wise trends.