The Reserve Bank of India acts as lender of last resort by: MCQ with Answer and Explanation

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The Reserve Bank of India acts as lender of last resort by:

A. lending only to the central government

B. issuing currency against gold

C. providing funds to banks when they cannot obtain funds from other sources

D. giving loans to the public at low interest

Answer: Option C

Solution (By JKSSB Mock Tests)

The RBI as lender of last resort provides funds to banks facing liquidity crises when other sources are unavailable.

This question belongs to: Economy GK Economy Set 1

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Question #1

The concept of 'Liquidity Trap' implies that monetary policy becomes ineffective because:

A. People prefer to hold cash at very low interest rates

B. Interest rates are very high

C. Money demand is interest-inelastic

D. Investment is highly interest-elastic

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Correct Answer: Option A

Explanation:
In a liquidity trap, interest rates are near zero and the demand for money becomes perfectly elastic; additional money supply is absorbed as idle balances without reducing interest rates further.

This question belongs to: Economy GK Economy Set 1

Question #2

The 'Central Vigilance Commission' is a:

A. judicial body

B. constitutional body

C. private body

D. statutory body

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Correct Answer: Option D

Explanation:
The Central Vigilance Commission is a statutory body.

This question belongs to: Economy GK Economy Set 1

Question #3

Which of the following is a characteristic of the 'Sudden Stop' literature?

A. Capital-flow reversals are always gradual and benign

B. Capital flows never reverse

C. Only trade shocks matter

D. Abrupt reversals of capital inflows can cause large real depreciations, output collapses and financial crises

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Correct Answer: Option D

Explanation:
Sudden-stop models analyse the macroeconomic and financial consequences of large and abrupt reversals in capital inflows, which often trigger currency crises, credit contractions and sharp recessions.

This question belongs to: Economy GK Economy Set 1

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