FISCAL MONETARY RELATIONS
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Central Banking (Elective) — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
What is the primary distinction between fiscal policy and monetary policy in India?
Fiscal policy deals with government revenue and expenditure managed by the Ministry of Finance, while monetary policy deals with money supply and interest rates managed by the Reserve Bank of India.
What is 'twin balance sheet problem' in the context of fiscal-monetary coordination?
Stressed banks and over-leveraged companies simultaneously weakening economic transmission.
Which body is responsible for formulating monetary policy in India?
The Monetary Policy Committee (MPC) of the Reserve Bank of India is responsible for formulating monetary policy, with a mandate to maintain price stability while keeping growth in mind.
What is the 'primary deficit' and how does it differ from the fiscal deficit?
Fiscal deficit minus interest payments; reflects current borrowing excluding past debt burden.
How does a high fiscal deficit affect monetary policy?
A high fiscal deficit can be inflationary as the government borrows heavily from the market, increasing money supply and putting upward pressure on interest rates, which complicates the RBI's task of controlling inflation.
What is the 'Bond-Currency-Derivative Nexus' relevant to fiscal-monetary policy?
Interconnection between government bond markets, exchange rates, and derivative instruments affecting policy transmission.
What is the Fiscal Responsibility and Budget Management (FRBM) Act and its relevance to monetary policy?
The FRBM Act 2003 mandates fiscal discipline by limiting government deficits and debt, reducing the monetisation of fiscal deficit and thereby supporting the RBI's monetary policy objectives of price stability.
How does the cash reserve ratio (CRR) function as a tool linking monetary and fiscal policies?
CRR absorbs excess liquidity created by government spending, sterilising fiscal expansions.
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