Question

What is the primary objective of monetary policy in India?

• A. To bring price stability in the economy
• B. Employment generation in the country
• C. To increase trade surplus
• D. To generate greater tax revenue

Hint:

The Reserve Bank of India uses monetary policy to control inflation and maintain price stability, which is crucial for economic stability.

Answer 1

The Correct Option is A

Step 1: Understanding Monetary Policy:
Monetary policy refers to the actions taken by a central bank to control the supply of money, interest rates, and inflation in an economy. In India, the Reserve Bank of India (RBI) is responsible for formulating and implementing monetary policy.
Step 2: Key Objectives of Monetary Policy:
The primary objectives of monetary policy in India are:
- Price Stability: The main goal is to control inflation and maintain stable prices for goods and services. High inflation can erode purchasing power, while deflation can lead to stagnation.
- Economic Growth: While price stability is crucial, monetary policy also aims to support sustainable economic growth by maintaining a balance between inflation and demand.
- Full Employment: Indirectly, monetary policy helps in maintaining full employment by stabilizing inflation and encouraging economic activity.
Step 3: Analyzing the Options:
- Option (A) To bring price stability in the economy: This is the correct answer. The RBI’s primary objective is to control inflation and ensure that prices remain stable, which helps maintain the purchasing power of money.
- Option (B) Employment generation in the country: While employment generation is important, it is not the primary objective of monetary policy. Fiscal policy, rather than monetary policy, plays a more direct role in creating jobs.
- Option (C) To increase trade surplus: Trade balance is influenced by fiscal policies and international trade agreements, but it is not the direct goal of monetary policy.
- Option (D) To generate greater tax revenue: Tax revenue is the responsibility of fiscal policy, not monetary policy. The RBI does not directly aim to increase government tax revenue.
Step 4: Conclusion and Answer:
The correct answer is (A) because the primary objective of monetary policy in India is to maintain price stability in the economy.