True or False: Lower interest rates always lead to increased savings among households.

False. Lower interest rates can diminish the incentive to save, encouraging households to spend more.

What is the role of the Monetary Policy Committee (MPC) in India?

The MPC is responsible for setting the inflation target and making key monetary policy decisions to maintain price stability.

Explain the Cash-flow channel of monetary policy transmission.

Cash-flow channel affects spending behavior.

• Interest rates impact income.

• Households adjust spending patterns.

• Business investment decisions change.

Fill in the blank: The RBI's liquidity adjustment facility primarily involves the _______ rate and the reverse repo rate.

Repo

What does the term 'inflation targeting' mean in the context of the RBI?

Inflation targeting refers to the official announcement of a specific inflation rate that the RBI aims to achieve to maintain price stability.

True or False: The RBI's primary goal is to maximize economic growth at all costs.

False. The RBI aims to balance economic growth with price stability.

What are the two main types of reserve ratios that banks must maintain?

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).

Fill in the blank: When the RBI sells government securities, it _______ liquidity from the market.

Withdraws

Describe how lower interest rates can stimulate business investment.

Lower interest rates reduce borrowing costs, making it more attractive for businesses to invest in capital goods and expand operations.

What is the significance of the Consumer Price Index (CPI) in the RBI's monetary policy?

The CPI is used as an inflation target because it closely reflects the cost of living and influences inflation expectations.