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CUET Economics 2025 PYQs2 June Shift 1. Free, no login required.

Macro

past year questions, CUET Economics 2025 2 June Shift 1

Money & Banking

past year questions, Macro, CUET Economics 2025 2 June Shift 1

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

RBI Monetary Policy

The Reserve Bank of India, in its monetary policy meet decided to keep the key policy rates unchanged after two emergency rate cuts amid the COVID-19 disruptions and its ensuing economic fall out. Consequently, the repo rate stands unchanged at 4% and the reverse repo rate at 3.35%. RBI noted that the economic activity had started to recover from the lows of April-May. Meanwhile, migrant labor is returning to work in urban areas, and factories and construction activities are coming back to life. This is also reflected in rising levels of energy consumption and population mobility. In cities, traffic intensity is rising rapidly; online commerce is booming; and people are getting back to offices. The mood of the nation has shifted from fear and despair to confidence and hope. Some of this optimism is being reflected in people’s expectations. In September 2020, round of the RBI’s survey, households expects inflation to decline modestly over the next three months, indicative of hope that supply chains are mending.

A cut in Repo Rate would lead to __________ in Money Supply and a cut in Reverse Repo Rate would lead to __________ in deposits of commercial bank to RBI

Solution

✅ Correct Option: 4

Option 1 -> A cut in Repo Rate increases money supply (correct), but a cut in Reverse Repo Rate decreases deposits to RBI, not increases.

Option 2 -> Both effects are incorrect. A cut in Repo Rate increases money supply, not decreases it.

Option 3 -> A cut in Repo Rate increases money supply, not decreases. However, the second part about Reverse Repo Rate is correct.

Option 4 -> A cut in Repo Rate makes borrowing cheaper for banks, increasing money supply. A cut in Reverse Repo Rate makes parking funds with RBI less attractive, decreasing deposits.

Hence, Option 4: increase; decrease -> When Repo Rate (rate at which RBI lends to banks) is cut, borrowing becomes cheaper, so banks borrow more, injecting more money into the economy and increasing money supply. When Reverse Repo Rate (rate at which banks park surplus funds with RBI) is cut, the returns on parking money with RBI reduce, making it unattractive for banks to keep deposits with RBI, thus decreasing their deposits to RBI. -> correct

More from this set:

Question 41

The Reserve Bank of India (RBI) __________ government securities in a bid to ________ the stock of money in the economy.

Question 43

Why did Monetary Policy Committee keep its policy rate unchanged in its recent meet?

Question 44

Which of the following is not a monetary measure adopted by Reserve Bank of India?

Question 45

Repo Rate is the rate at which.

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