Daily Static Quiz (Economy) Oct 24, 2025
Daily Static Quiz (Economy) Oct 24, 2025
Q1. Consider the following statements regarding monetary policy tools used by the Reserve Bank of India:
Under the Marginal Standing Facility, banks can borrow overnight funds from RBI by pledging government securities at a rate higher than the repo rate.
Cash Reserve Ratio is maintained by commercial banks with themselves in the form of cash reserves.
Banks earn interest on the money parked under Statutory Liquidity Ratio.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Q2. With reference to Open Market Operations (OMOs) conducted by the Reserve Bank of India, consider the following statements:
When RBI purchases government securities in the open market, it injects liquidity into the banking system.
Sale of government securities by RBI leads to increase in money supply and decrease in interest rates.
Operation Twist involves simultaneous purchase of long-term securities and sale of short-term securities.
Which of the statements given above is/are correct?
(a) 1 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Q3. The Reserve Bank of India uses various tools to control inflation in the economy. If RBI intends to reduce inflationary pressures, which of the following measures would be most effective?
Increasing the Reverse Repo Rate
Reducing the Cash Reserve Ratio
Selling government securities through Open Market Operations
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Q4. With reference to business cycles in an economy, consider the following statements:
During the expansion phase, employment levels rise and production increases steadily.
Peak represents the highest point of economic activity after which growth halts and reverses.
A recession lasting for three or more years with GDP falling by 10% or more is termed as depression.
Trough marks the end of recession and prepares ground for recovery.
Which of the statements given above are correct?
(a) 1, 2 and 3 only
(b) 2, 3 and 4 only
(c) 1, 3 and 4 only
(d) 1, 2, 3 and 4
Q5. During which phase of the business cycle would the following economic conditions most likely occur?
Demand for goods and services starts declining rapidly
Producers continue producing despite decreased demand
Prices tend to fall
Unemployment begins to rise
(a) Expansion
(b) Peak
(c) Recession
(d) Trough
Q6. Consider the following statements about inflation in India:
Demand-pull inflation occurs when aggregate demand exceeds aggregate supply in the economy.
Cost-push inflation results from increase in production costs which are passed on to consumers.
Implementation of Pay Commission recommendations can lead to demand-pull inflation.
Supply chain disruptions during COVID-19 pandemic primarily caused cost-push inflation in India.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 1, 2 and 3 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4
Q7. Which of the following regulatory bodies is/are correctly matched with their respective jurisdiction?
SEBI – Regulation of securities market and protection of investor interests
IRDAI – Regulation of insurance sector and protection of policyholders
PFRDA – Regulation of pension funds and National Pension System
RBI – Regulation of banking sector and monetary policy formulation
Select the correct answer using the code given below:
(a) 1, 2 and 3 only
(b) 2, 3 and 4 only
(c) 1, 3 and 4 only
(d) 1, 2, 3 and 4
Q8. The Pension Fund Regulatory and Development Authority (PFRDA) was established under the PFRDA Act, 2013. Which of the following is/are functions of PFRDA?
Regulating National Pension System and Atal Pension Yojana
Registering and regulating intermediaries like Pension Fund Managers
Establishing grievance redressal mechanism for pension subscribers
Determining interest rates for provident fund schemes
Select the correct answer using the code given below:
(a) 1 and 2 only
(b) 1, 2 and 3 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4
Q9. Consider the following statements regarding financial regulatory bodies in India:
Reserve Bank of India regulates commercial banks and has fully owned subsidiaries including NABARD and SIDBI.
SEBI was established in 1988 and was given statutory powers through SEBI Act, 1992.
IRDAI headquarters is located in Hyderabad and regulates both life and general insurance companies.
Forward Markets Commission was merged with RBI in 2015 to regulate commodity markets.
Which of the statements given above are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1, 2 and 3 only
(d) 1, 3 and 4 only
Q10. With reference to development financial institutions in India, consider the following:
NABARD focuses on agriculture and rural development finance
SIDBI provides financial assistance to Micro, Small and Medium Enterprises
EXIM Bank facilitates and promotes foreign trade by financing imports and exports
National Housing Bank is wholly owned by Government of India since 2019
Which of the statements given above are correct?
(a) 1, 2 and 3 only
(b) 2, 3 and 4 only
(c) 1, 3 and 4 only
(d) 1, 2, 3 and 4
ANSWER KEY WITH EXPLANATIONS
Q1. Answer: (b) 1 and 3 only
Explanation:
Statement 1 is correct: Marginal Standing Facility (MSF) is a monetary policy tool that allows scheduled commercial banks to borrow overnight funds from RBI against approved government securities when inter-bank liquidity is completely depleted. The MSF rate is set higher than the repo rate and acts as a penal rate, typically 25 basis points above the repo rate. Banks can borrow up to 1% of their Net Demand and Time Liabilities (NDTL) under this facility.
Statement 2 is incorrect: Cash Reserve Ratio (CRR) is the percentage of a bank’s total deposits that must be maintained as cash reserves with the Reserve Bank of India, not with the banks themselves. This is a crucial distinction – CRR reserves are held with RBI, while SLR reserves are maintained by banks themselves. Banks do not earn any interest on CRR deposits maintained with RBI.
Statement 3 is correct: Statutory Liquidity Ratio (SLR) requires banks to maintain a certain percentage of their deposits in the form of liquid assets such as cash, gold, and government-approved securities. Unlike CRR, banks do earn interest on the government securities held as part of SLR requirements. This is a key difference between CRR and SLR – SLR provides returns while CRR does not.
Q2. Answer: (b) 1 and 3 only
Explanation:
Statement 1 is correct: Open Market Operations (OMOs) are monetary policy tools used by RBI involving purchase and sale of government securities in the open market. When RBI purchases government securities from banks and financial institutions, it injects liquidity into the banking system by releasing funds. This increases the money supply in the economy, enabling banks to extend more loans and investments.
Statement 2 is incorrect: This statement reverses the actual effect. When RBI sells government securities in the open market, it absorbs liquidity from the system (sucking out money), which reduces the money supply and increases interest rates. The sale of securities makes loans more expensive and decreases economic activity. Conversely, buying securities injects money, lowers interest rates, and increases economic activity.
Statement 3 is correct: Operation Twist is a specific type of OMO where RBI simultaneously purchases government securities of longer maturities (long-term bonds) and sells equal amounts of government securities of shorter maturities (short-term bonds). For example, RBI might buy bonds maturing in 2029 while selling bonds maturing in 2020. This operation aims to flatten the yield curve and manage liquidity across different maturity segments.
Q3. Answer: (b) 1 and 3 only
Explanation:
Measure 1 is correct: Increasing the Reverse Repo Rate is an effective anti-inflationary measure. The Reverse Repo Rate is the rate at which RBI borrows money from commercial banks. When RBI increases this rate, it incentivizes banks to park their surplus funds with RBI rather than lending to the market. This reduces liquidity in the economy, decreases money supply, and helps control inflationary pressures. As of the search results, the reverse repo rate mechanism is specifically used to control inflation.
Measure 2 is incorrect: Reducing the Cash Reserve Ratio would actually increase inflation, not reduce it. When CRR is reduced, banks have more funds available for lending to customers. This increases the money supply in the economy, which can fuel inflation rather than control it. To reduce inflation, RBI would need to increase CRR, not reduce it, thereby restricting the amount of money banks can lend.
Measure 3 is correct: Selling government securities through Open Market Operations is an effective tool to control inflation. When RBI sells securities in the open market, it absorbs excess liquidity from the banking system, effectively reducing the money supply. This raises interest rates, makes borrowing more expensive, and decreases economic activity and spending, thereby helping to control inflationary pressures. This is classified as a contractionary monetary policy.
Q4. Answer: (d) 1, 2, 3 and 4
Explanation:
Statement 1 is correct: The expansion phase of a business cycle is characterized by positive economic indicators including rising employment, increasing income and output, growing wages and profits, and rising demand for goods and services. During expansion, the economy experiences relatively rapid growth, production increases, and the flow of money through the economy remains healthy. This represents the first stage of a new economic cycle with steady increases in output, income, employment, and sales.
Statement 2 is correct: The peak represents the highest point of the business cycle where economic indicators like GDP, income, employment, investment, and demand reach their maximum levels. Prices reach their peak during this phase. After the peak, growth halts and the economy cannot continue growing indefinitely, marking the reversal point in the trend of economic growth. The peak is followed by contraction or recession. This stage is typically short-lived as the economy transitions to the next phase.
Statement 3 is correct: Depression is defined as a severe and prolonged recession lasting three or more years, or with GDP falling by 10% or more in a year. It results in extremely low business confidence, minimal investments, and severely depressed consumer demand. The Great Depression of 1929 is the most famous historical example. Depression represents the most severe form of economic contraction, going beyond a typical recession in both duration and severity of economic decline.
Statement 4 is correct: The trough is the lowest point in the business cycle where economic activity bottoms out. It represents the point where supply and demand hit their lowest levels. The trough marks the end of recession or depression and prepares the ground for recovery. Though it’s a painful phase with widespread negative impacts from stagnating spending and income, it provides an opportunity for individuals and businesses to reconfigure their finances in anticipation of recovery. After the trough, the economy moves into the recovery phase.
Q5. Answer: (c) Recession
Explanation:
The described economic conditions are characteristic of the Recession phase of the business cycle.
During recession, demand for goods and services starts declining rapidly and steadily. A critical feature is that producers do not immediately notice the decrease in demand and continue producing at previous levels, creating a situation of excess supply in the market. This oversupply leads to prices tending to fall as businesses try to clear inventory.
As the recession deepens, all positive economic indicators such as income, output, wages, and profits consequently start to fall. There is a commensurate rise in unemployment as businesses cut costs and reduce workforce. The recession phase follows the peak phase and represents a period of contraction in economic activity.
In contrast:
Expansion is characterized by rising demand, increasing employment, and growing production
Peak shows demand and supply at their highest points with stable or rising prices
Trough is the lowest point where demand has already bottomed out and the economy is preparing for recovery
The simultaneous occurrence of declining demand, continued production by producers unaware of demand reduction, falling prices, and rising unemployment specifically indicates the recession phase where the economy is moving from peak toward trough.
Q6. Answer: (d) 1, 2, 3 and 4
Explanation:
Statement 1 is correct: Demand-pull inflation occurs when aggregate demand in the economy exceeds aggregate supply. This is often described as “too many dollars chasing too few goods.” When consumer demand pulls prices higher because firms cannot keep up with production, it results in demand-pull inflation. This type of inflation arises from the demand side of the economy.
Statement 2 is correct: Cost-push inflation results from an increase in production costs (such as raw materials, labor, energy) that puts upward pressure on prices. When businesses face higher input costs, they pass these increased costs on to consumers by raising prices to maintain profit margins, regardless of demand levels. For example, if the price of crude oil increases, transportation and manufacturing costs rise, leading businesses to increase their prices.
Statement 3 is correct: Implementation of Pay Commission recommendations can indeed lead to demand-pull inflation. When the government implements Pay Commission increases for government employees, it raises disposable income. Higher salaries mean more purchasing power in the hands of people, leading to increased demand for commodities and services. Private companies may also increase salaries to retain talent. This increased spending with relatively constant supply leads to demand-pull inflation.
Statement 4 is correct: During the COVID-19 pandemic, supply disruptions were the main cause of inflation in India, which is characteristic of cost-push inflation. The pandemic and lockdowns caused major declines in production and supply chain challenges. The Russia-Ukraine conflict in 2022 further intensified supply chain disruptions and added to commodity price pressures. According to RBI observations, approximately 55% of CPI headline inflation from January 2019 to May 2023 was attributed to supply-side factors (cost-push), while demand factors contributed 31%.
Q7. Answer: (d) 1, 2, 3 and 4
Explanation:
Match 1 is correct: SEBI (Securities and Exchange Board of India) is the statutory regulatory body established under the SEBI Act, 1992, that regulates and oversees the securities market in India. Its primary functions include protecting investor interests, preventing insider trading, price rigging, and fraudulent activities in capital markets, regulating stock exchanges, registering and monitoring brokers, mutual funds, and other market intermediaries. SEBI’s headquarters is in Mumbai.
Match 2 is correct: IRDAI (Insurance Regulatory and Development Authority of India) was established under the IRDAI Act of 1999 and is responsible for regulating and developing the insurance sector in India. It oversees both life and general insurance companies, protects policyholders’ interests, ensures solvency of insurance companies, and promotes growth of the insurance industry. IRDAI is headquartered in Hyderabad. It has unique features like the Policyholder Protection Committee.
Match 3 is correct: PFRDA (Pension Fund Regulatory and Development Authority) is a statutory regulatory body established under the PFRDA Act, 2013, with the objective of promoting old-age income security and regulating pension funds. It regulates the National Pension System (NPS) and Atal Pension Yojana (APY), protects subscriber interests, registers and regulates intermediaries like Pension Fund Managers, and establishes grievance redressal mechanisms. PFRDA is headquartered in New Delhi under the Ministry of Finance.
Match 4 is correct: RBI (Reserve Bank of India) is India’s central banking institution established in 1935 that regulates the entire banking sector and formulates monetary policy. RBI’s functions include managing currency issuance, controlling money supply, regulating commercial and cooperative banks, managing foreign exchange reserves, controlling inflation through various monetary policy tools (repo rate, CRR, SLR, OMO), and ensuring financial stability. It’s often called the “banker’s bank.”
Q8. Answer: (b) 1, 2 and 3 only
Explanation:
Function 1 is correct: PFRDA’s primary mandate includes regulating the National Pension System (NPS) for both government and private sector employees, as well as the Atal Pension Yojana (APY) for unorganized sector workers. The PFRDA Act empowers it to regulate both Tier-1 and Tier-2 accounts of NPS. This is explicitly mentioned in the preamble of the PFRDA Act – “to promote old age income security by establishing, developing and regulating pension funds.”
Function 2 is correct: PFRDA is responsible for registering and regulating various intermediaries in the pension ecosystem. These intermediaries include Pension Fund Managers (PFMs), Central Record-Keeping Agency (CRA), custodians, and other entities involved in pension fund management. PFRDA also has the authority to conduct inquiries, investigations, and audits of these intermediaries. Additionally, it trains intermediaries to familiarize and educate people about the importance of pension funds.
Function 3 is correct: One of the key functions of PFRDA is to establish and operate grievance redressal mechanisms for pension subscribers. PFRDA addresses complaints and disputes related to various pension schemes, resolves conflicts between intermediaries and subscribers, and between different intermediaries. This consumer protection function is essential for maintaining trust in the pension system and ensuring subscriber interests are safeguarded.
Function 4 is incorrect: PFRDA does not determine interest rates for provident fund schemes. Provident Funds (like Employees’ Provident Fund – EPF) are governed by the Employees’ Provident Fund Organisation (EPFO) under the Ministry of Labour and Employment, which is a different regulatory framework altogether. The interest rates for EPF are decided by the EPFO’s Central Board of Trustees and approved by the Ministry of Finance. PFRDA’s jurisdiction is limited to pension schemes, specifically NPS and APY, which are defined contribution schemes, not defined benefit schemes like traditional provident funds.
Q9. Answer: (b) 2 and 3 only
Explanation:
Statement 1 is partially incorrect: While it’s true that RBI regulates commercial banks, the statement about subsidiaries is inaccurate. NABARD and SIDBI are not fully owned subsidiaries of RBI. NABARD (National Bank for Agriculture and Rural Development) was initially set up by RBI but is now an apex development bank with its own structure. SIDBI (Small Industries Development Bank of India) is a wholly-owned subsidiary of IDBI (Industrial Development Bank of India), not RBI. RBI does have some subsidiaries, but NABARD and SIDBI are regulated by RBI as specialized financial institutions, not owned by it.
Statement 2 is correct: SEBI was indeed established in 1988 as a non-statutory body and was upgraded to a statutory body through the SEBI Act, 1992. The establishment of SEBI became imperative following major financial frauds including the Harshad Mehta scam, which exposed gaps in investor protection. The SEBI Act gave it comprehensive powers for protective, regulatory, and developmental functions in securities markets. SEBI’s headquarters is in Mumbai.
Statement 3 is correct: IRDAI (Insurance Regulatory and Development Authority of India) was established under the Insurance Regulatory and Development Authority Act of 1999, and its headquarters is indeed located in Hyderabad, Telangana. IRDAI regulates both life insurance and general insurance companies in India. It is responsible for protecting policyholders’ interests, ensuring solvency of insurance companies, issuing licenses to insurance companies, and promoting the development of the insurance sector.
Statement 4 is incorrect: The Forward Markets Commission (FMC), which regulated commodity futures markets in India, was merged with SEBI in 2015, not with RBI. This merger was done to bring commodity derivatives under the same regulatory framework as securities markets. After the merger, SEBI became the unified regulator for both securities and commodity derivatives markets in India. RBI regulates the banking sector and money markets, not commodity markets.
Q10. Answer: (d) 1, 2, 3 and 4
Explanation:
Statement 1 is correct: NABARD (National Bank for Agriculture and Rural Development) is a specialized development financial institution that focuses on agriculture and rural development. It provides refinancing facilities to banks and financial institutions for agricultural and rural development activities, supports cooperative banks, promotes rural infrastructure, and implements various government schemes related to agriculture and rural development. NABARD plays a crucial role in credit flow to the agricultural sector.
Statement 2 is correct: SIDBI (Small Industries Development Bank of India) was established under the SIDBI Act of 1989 and is the primary financial institution for promotion, financing and development of Micro, Small and Medium Enterprises (MSMEs). SIDBI provides both direct and indirect financial assistance to small industries, refinances loans extended by banks to MSMEs, and promotes entrepreneurship development. It is a wholly-owned subsidiary of IDBI and is one of the four financial institutions regulated by RBI.
Statement 3 is correct: EXIM Bank (Export-Import Bank of India) was established under the Export-Import Bank of India Act of 1981, with headquarters in Mumbai. Its primary objective is to finance, facilitate and promote foreign trade in India. EXIM Bank finances imports and exports of goods and services, provides refinancing to banks for export credit, extends lines of credit to foreign governments and banks, provides technical and advisory services to exporters, and supports Indian companies in overseas ventures and joint ventures abroad.
Statement 4 is correct: National Housing Bank (NHB) was established in 1988 under the National Housing Bank Act of 1987 as a subsidiary of RBI with initial capital from RBI. However, following recommendations of the Narasimham-II committee, NHB became wholly owned by the Government of India in 2019 when the government purchased RBI’s stake for ₹1,450 crores. NHB regulates Housing Finance Companies (HFCs), promotes housing finance institutions, and works to make housing credit more affordable and accessible to various sections of society.
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