Directions (Q. 1-10): Read the passage carefully and answer the questions given below it. Certain words/phrases are given in bold to help you locate them while answering some of the questions.
The Expert Committee formed under the supervision of Reserve Bank of India (RBI) Deputy Governor, Urjit Patel, released their report to revise and strengthen the monetary policy framework, earlier this year. Since then, the report has been heavily discussed and debated in academic and policy circles. It recommends a fundamental change in the way monetary policy is conducted in India. The one recommendation that has been the main talking point so far is the adoption of a flexible inflation target. Here we attempt to analyse this particular recommendation of the committee against the backdrop of the current Indian economic scenario.
Monetary policy in independent India has evolved substantially over the past several decades. India adopted widespread liberalisation, privatisation, and deregulation reforms in the early 1990s. During the post-liberalisation period running up to the present time, the RBI has been following a multiple-indicator approach for executing monetary policy. In this approach, information is gathered on various macroeconomic indicators such as output, trade, credit, inflation rate, exchange rate, capital flows etc. Thereafter, monetary policy is designed to fulfil the multiple objectives of increasing employment, closing the gap with potential output, moderating inflation, stabilising exchange rate and so on.
This kind of multiple-indicator approach, however, lacks a nominal anchor or a specific target per se and hence it may be argued that it is less likely to be effective in achieving all the objectives at the same time. Such an approach makes the monetary policy highly discretionary and runs the risk of sending confusing signals to market participants as well as corporations..
In India, the multiple-indicator approach of the monetary policy worked relatively well, especially between the late 1990s and late 2000s when Indian GDP was growing at a healthy and robust rate of close to 10 per cent or more, and inflation (measured by the wholesale price index or WPI) was moderate at around 5-6 per cent. This was also the time when all was apparently well in the global economy, which was going through a phase of relatively low output volatility .
1. Which of the following statements is contrary to the facts mentioned in the given passage?
1) The Urjit Patel committee report has expressed resentment with the way monetary policy is conducted in India.
2) India’s economy experienced a much better GDP growth rate between the late 1990s and late 2000s.
3) A lot of monetary policy changes have taken place in post-independent India.
4) Between the late 1990s and the late 2000s, contrary to India, the global economy was passing through a phase of financial crisis.
5) All the above
2. Why was the Urjit Patel committee set up? Reply in the context of the passage.
1) The Urjit Patel Committee was set up to provide expert opinion on how to cut rates to strengthen the economy.
2) The Urjit Patel committee was set up to receive suggestions for issuing banking licences to private players.
3) The Urjit Patel Committee report was set up to provide expert opinion on how to contain inflation in a short time.
4) The Urjit Patel Committee was set up to suggest steps to restructure the monetary policy to strengthen the economy.
5) None of these
3. What is the meaning of the phrase ‘flexible inflation target’ as used in the given passage?
1) Flexible inflation target means to calculate core inflation on the basis of variable CPI for certain goods and services.
2) Flexible inflation target means the policy rate set up by the central bank so as to stablilise inflation around the targeted rate and also stabilise the real economy.
3) Flexible inflation target means the target set by the central bank by which it tries to bring inflation back to the targeted rate after a deviation.
4) Flexible inflation target is a forecast published by the RBI in respect of the policy rate and inflation for bringing real economic stability.
5) None of these
4. Which of the following is not true on the basis of the given passage?
(A) The economic growth pick-up in India began a full decade prior to the liberalising reforms in the 1990s.
(B) The current monetary policy is based on the information collected about many different macroeconomic indicators.
(C) Monetary policy is designed to collect a huge amount of revenue to meet various govt expenditures.
1) Only (A) and (B) 2) Only (B) and (C)
3) Only (A) and (C) 4) Only (B)
5) Only (A)
5. What is/are the reasons for criticism against multiple indicator approach?
(A) Multiple-indicator approach is based on the information about many indicators.
(B) Multiple-indicator approach has very little chance of achieving all the fixed goals.
(C) Multiple-indicator approach is likely to send confounding signals to stakeholders.
1) Only (A) and (B)
2) Only (A) and (C)
3) Only (B) and (C)
4) Only (B)
5) All (A), (B) and (C)
Directions (Q. 6-8): Choose the word/group of words which is MOST SIMILAR in meaning to the word/group of words printed in bold as used in the passage.
6. Per se
1) by word 2) mentioned 3) as such
4) accordingly 5) together
7. Volatility
1) dryness 2) effervescence 3) levity
4) insecurity 5) instability
8. Backdrop
1) framework 2) circumstances 3) credentials
4) drawbacks 5) tradition
Directions (Q. 9-10): Choose the word/group of words which is MOST OPPOSITE in meaning of the word/group of words printed in bold as used in the passage.
9. Moderating
1) rising 2) subsiding 3) allaying
4) easing off 5) lessening
10. Discretionary
1) elective 2) facultative 3) open to choice
4) restricted 5) optional
Answers :
1. 4 2. 4 3. 2 4. 3 5. 3
6. 3 7. 5 8. 2 9. 1 10. 4
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