In the context of monetary policy transmission, the 'Credit Channel' emphasises: MCQ with Answer and Explanation

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In the context of monetary policy transmission, the 'Credit Channel' emphasises:

A. The effects of monetary policy on the supply of bank loans and external finance premia

B. Only the interest-rate effects on investment

C. Only exchange-rate effects

D. Only wealth effects on consumption

Answer: Option A

Solution (By JKSSB Mock Tests)

The credit channel (or financial-accelerator mechanism) stresses that monetary policy affects real activity not only through interest rates but also through changes in the availability and cost of external finance for borrowers.

This question belongs to: Economy GK Economy Set 1

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Question #1

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Which of the following is a characteristic of the 'Risk-Sharing' benefits of international financial integration?

A. Only closed economies can smooth consumption

B. Risk-sharing is irrelevant for welfare

C. Countries can smooth consumption in the face of idiosyncratic shocks by trading claims on future output

D. Integration always increases consumption volatility

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Correct Answer: Option C

Explanation:
International risk-sharing allows countries to diversify away country-specific income shocks by holding foreign assets, thereby reducing the volatility of national consumption relative to national output.

This question belongs to: Economy GK Economy Set 1

Question #2

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The 'gender budgeting' in India refers to:

A. budget for women only

B. budget for defence

C. tax on women

D. analysis of budget allocations from a gender perspective

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Correct Answer: Option D

Explanation:
Gender budgeting involves analyzing government budgets for their impact on women and girls.

This question belongs to: Economy GK Economy Set 1

Question #3

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In the context of fiscal policy, 'Automatic Stabilisers' operate through:

A. Built-in features of the tax and transfer system that dampen fluctuations without discretionary action

B. Only discretionary changes in spending

C. Only changes in the monetary base

D. Only exchange-rate adjustments

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Correct Answer: Option A

Explanation:
Automatic stabilisers are elements of the fiscal system—progressive taxes and unemployment benefits—that automatically reduce the amplitude of business-cycle fluctuations without the need for new legislation.

This question belongs to: Economy GK Economy Set 1

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