Question 1

Which of the following best describes 'Fiscal Deficit' in the Union Budget?

Accepted Answer

Fiscal Deficit is the difference between the government's total expenditure and its total receipts excluding borrowings. It indicates the total borrowing requirements of the government. It is expressed as a percentage of GDP. Revenue deficit, on the other hand, is the excess of revenue expenditure over revenue receipts.

Question 2

Which of the following best describes Fiscal Deficit in the context of a government budget?

Accepted Answer

Fiscal Deficit is the difference between total government expenditure and total government revenue (excluding borrowing). When a government spends more money than it collects through taxes and other revenues, it must borrow to finance the gap. This is a core concept in macroeconomic policy and budget analysis. Therefore, the answer is B.

Question 3

Which of the following best describes the primary objective of the Reverse Repo Rate in India's monetary policy framework?

Accepted Answer

The Reverse Repo Rate is the rate at which the RBI borrows money from commercial banks. Its primary objective is to absorb excess liquidity from the banking system and control inflation. When the RBI increases the reverse repo rate, it incentivizes banks to park their surplus funds with the RBI rather than lend in the market, thereby reducing money supply. Option B correctly identifies this liquidity absorption function. Option A confuses reverse repo with repo rate (which injects liquidity). Option C incorrectly states the purpose as credit expansion, which is opposite to reverse repo's deflationary intent. Option D misidentifies reverse repo as a tool for increasing lending, when it actually discourages lending by offering attractive returns on deposits with RBI.

Question 4

In the context of India's monetary policy framework, if the RBI increases the Cash Reserve Ratio (CRR), what is the direct immediate effect on the money supply in the economy?

Accepted Answer

When the RBI increases the CRR, commercial banks are required to hold a larger proportion of their deposits as reserves with the RBI. This reduces the amount of money available for banks to lend to the public, thereby contracting the money supply in the economy. An increase in CRR is a contractionary monetary policy tool. Option B correctly identifies this contraction. Option A incorrectly suggests expansion (the opposite effect). Option C confuses CRR with the repo rate, which directly affects borrowing costs rather than reserve requirements. Option D misidentifies the mechanism by conflating CRR with inflation control through direct price mechanisms, which is incorrect.

RRB Group D Budget, Fiscal & Monetary Policy

RRB Group D Budget, Fiscal & Monetary Policy — Past Exam Questions

Budget, Fiscal & Monetary Policy— Rules & Concept

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Budget, Fiscal & Monetary Policy — Practice Questions

60-Second Revision — Budget, Fiscal & Monetary Policy