Inflation Targeting — MCQ Practice

Which of the following statements regarding India's flexible inflation targeting framework is/are correct? 1. The inflation target is set at 4% with a tolerance band of +/- 2% for the Wholesale Price Index (WPI). 2. The Monetary Policy Committee (MPC) consists of five members, with the RBI Governor having a casting vote. 3. If the RBI fails to meet the inflation target for three consecutive quarters, it must submit a report to the Central Government. Select the correct answer using the code given below:

The Urjit Patel Committee (2014) recommendations were instrumental in the adoption of India's current monetary policy framework. Which of the following was a key recommendation of this committee? (A) To adopt a multiple indicator approach for monetary policy. (B) To target Wholesale Price Index (WPI) inflation at 5%. (C) To establish a Monetary Policy Committee (MPC) for setting the policy rate. (D) To prioritize exchange rate stability over price stability.

Consider the following statements regarding the Monetary Policy Committee (MPC) in India: 1. All six members of the MPC are appointed by the Central Government. 2. The decisions of the MPC are binding on the Reserve Bank of India. 3. The MPC's primary objective is to maintain price stability while keeping in mind the objective of growth. Which of the statements given above is/are correct?

Which of the following is NOT a challenge in the effective implementation of inflation targeting in India? (A) High volatility of food prices. (B) Dominance of supply-side factors in inflation. (C) Weak monetary transmission mechanism. (D) Lack of statutory backing for the inflation target.

In the context of India's flexible inflation targeting, what does the 'tolerance band' of +/- 2% signify?