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UPSC 2022: With reference to the Indian economy, consider the following statements: 1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. 2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. 3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars. Which of the statements given above are correct?
(a)1 and 2 only
(b)2 and 3 only
(c)1 and 3 only
(d)1, 2 and 3
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Not attemptedCorrect Answer: (b) 2 and 3 only
When inflation is high, the RBI drains liquidity by SELLING, not buying, government securities, making statement 1 incorrect. To arrest rapid rupee depreciation the RBI intervenes by selling US dollars from its reserves—statement 2 is correct. Lower policy rates in the US/EU encourage capital inflows; to prevent excessive rupee appreciation the RBI typically buys dollars, so statement 3 is also correct. Therefore 2 and 3 only are correct. ([economictimes.indiatimes.com](https://economictimes.indiatimes.com/markets/forex/rbi-sells-3-6-billion-in-april-to-stabilize-rupee-amid-global-trade-tensions/articleshow/122079524.cms?from=mdr&utm_source=openai))
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Frequently Asked Questions
What is the correct answer to this UPSC 2022 Indian Economy question?▼
The correct answer is option (b): 2 and 3 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 2022, GS Paper 1, as Question 3. 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.