11 Oct 2022

MCQ on Monetary Policy and Fiscal Policy

Monetary Policy and Fiscal Policy – MCQ Questions and Answers:

Indian Economics questions are more important for the TNPSC Group 2 Prelims Exam. You will get 6 to 8 marks from that Indian Economy portion. On this page, TNPSC Group 2, 2a, and Group 4 TNPSC Indian Economy Study Materials questions with answers are uploaded. Go through TNPSC Indian Economy Notes, Questions, and Answers below for the prelims exam. Monetary Policy and Fiscal Policy MCQ Questions and Answers are provided on this page.

What is Monetary Policy?

Monetary policy refers to the steps taken by a country’s central bank to control the money supply for economic stability. For example, policymakers manipulate money circulation to increase employment, GDP, and price stability by using tools such as interest rates, reserves, bonds, etc.



1. Borrowing is easy
2. Consumers buy more
3. Businesses expand
4. More people are employed
5. People spend more


1. Borrowing is difficult
2. Consumers buy less
3. Businesses Postpone expansion
4. Unemployment increases
5. Production is reduced


The specific objectives of monetary policy are,

1. Neutrality of Money
2. Stability of Exchange Rates
3. Price Stability
4. Full Employment
5. Economic Growth
6. Equilibrium in the Balance of Payments

How can monetary and fiscal policy be used together?

Both monetary and fiscal policies are used to regulate economic activity over time. They can be used to accelerate growth when an economy starts to slow or to moderate growth and activity when an economy starts to overheat. In addition, fiscal policy can be used to redistribute income and wealth.

Multiple choice Questions(MCQ) on Monetary and Fiscal policy

MCQs on monetary policy and fiscal policy are given below.

1. A Bank is a
a) Financial institution   b) Corporate   c) An Industry  d) Service institutions

2. A Commercial Bank is an institution that provides services
a) Accepting deposits b) Providing loans c) Both a and b  d) None of the above

3. The Functions of commercial banks are broadly classified into
a) Primary Functions b) Secondary functions c) Other functions d) a, b, and c

4. Bank credit refers to
a) Bank Loans  b) Advances c) Bank loans and advances d) Borrowings

5. Credit creation means.
a) Multiplication of loans and advances  b) Revenue  c) Expenditure  d) Debt

6. NBFI does not have.
a) Banking license b) government approval  c) Money market approval  d) Finance ministry approval

7. Central bank is the ————— authority of any country.
a) Monetary b) Fiscal c) Waged) National Income

8. Who will act as the banker to the Government of India?

9. Lender of the last resort is one of the functions of.
a) Central Bank b) Commercial banks c) Land Development Banks d) Co-operative banks

10. Bank Rate means.
a) Re-discounting the first class securities b) Interest rate  c) Exchange rate d) Growth rate

11. Repo Rate means.
a) Rate at which the Commercial Banks are willing to lend to RBI
b) Rate at which the RBI is willing to lend to commercial banks
c) Exchange rate of the foreign bank
d) Growth rate of the economy

12. Moral suasion refers.
a) Optimization b) Maximization  c) Persuasion   d) Minimization

13. ARDC started functioning from
a) June 3, 1963  b) July 3, 1963  c) June 1, 1963  d) July 1, 1963

14. NABARD was set up in.
a) July 1962  b) July 1972  c) July 1982  d) July 1992

15. EXIM bank was established in.
a) June 1982  b) April 1982  c) May 1982  d) March 1982

16. The State Financial Corporation Act was passed by
a) Government of India b) Government of Tamilnadu c) Government of Union Territories d) Local Government.

17. Monetary policy is formulated by.
a) Co-operative banks  b)Commercial banks  c) Central Bank  d) Foreign banks

18. Online Banking is also known as.
a) E-Banking b) Internet Banking  c) RTGS  d) NEFT

19. Expansions of ATM.
a) Automated Teller Machine  b) Adjustment Teller Machine  c) Automatic Teller mechanism  d) Any Time Money

20. 2016 Demonetization of currency includes denominations of
a) Rs.500 and Rs.1000  b) Rs.1000 and Rs.2000  c) Rs. 200 and Rs. 500   d) All the above

21. Fiscal policy in India is formulated by
a)  the Finance Ministry b.) the RBI   c.) the SEBI  d). the CSO

22. ______________ is NOT a Central government tax
A. Income tax     B. Customs duty      C. Land Revenue   D. Corporation Tax

23. The major finance for small-scale industries is
A. shares and debentures  B. bank loans  C. public deposits  D. foreign aid

24. ________ is an indirect tax?

A. Customs duty    B. Corporation Tax    C. Wealth tax    D. Gift tax

25. Out of the following which one contributes the minimum amount to the Government’s tax revenue?

A. Excise duty  B. Wealth tax  C. Income tax    D. Customs duty

26. Which of the following is the major source of Government revenue?

A. Direct taxes    B. Indirect taxes  C. License fees  D. Dividends and profits

27. Direct tax code had come into force from

A. 1st April 2012  B. 1st April 2011  C. 1st April 2010  D. 1st April 2009

28. Indirect tax means
A. direct relationship between tax-payer and the government
B. tax base is income
C. the incidence and impact are on the same person on whom tax is imposed
D. there is no direct relationship between the taxpayer and the Government

29. Excise duties are taxes on

A. sale of goods  B. import of Commodities  C. export of commodities D. production of commodities 

30. Professional tax is levied by

A. Central Government B. State Government  C. Local Bodies  D. Foreign Government

31. Which of the following is not an example of fiscal policy?

a. A reduction in income tax  b.An increase in corporation tax   c.A reduction in government spending  d.Higher interest rates

32. The objective of the Monetary Policy Committee is to control:

a.unemployment  b.inflation  c. economic growth  d.trade

33. If RBI reduces the cash reserve ratio, what will happen to credit creation?

a. There will be no impact. b.It will decrease.  c.It will increase.  d.None of the above

34. Main objectives of CRR and SLR are to ensure :

(i) Liquidity position of Bank

(ii) Financial position of the Bank.

(iii) Profit position of Bank

a. Only (i) is correct   b. Only (ii) is correct.   c. Only (iii) is correct   d. All are correct.

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