NABARD Assistant Manager Grade A Macroeconomics & Policy: practice questions

Question 1 · medium

A crop loan carries a nominal interest rate of 10% and expected inflation is 6%. What is the approximate real interest rate, and the exact rate from the Fisher equation?

1. About 4%; exactly 4%
2. About 4%; exactly 3.77%
3. About 16%; exactly 16.6%
4. About 1.67%; exactly 1.67%

Question 2 · medium

In the Reserve Bank of India's money supply measures, broad money M3 is

1. reserve money plus demand deposits
2. M1 plus post office savings deposits
3. M1 plus time deposits with the banking system
4. currency with the public plus other deposits with the RBI

Question 3 · medium

Why do food price shocks move headline consumer price inflation more in low-income countries than in high-income countries?

1. Food has a much larger weight in the CPI basket of low-income countries
2. Food prices are more volatile only in low-income countries, being stable in rich countries
3. Low-income countries measure inflation with the wholesale price index only
4. Central banks in high-income countries control food prices directly

Question 4 · hard

A central bank wants to reduce inflation from 10% to 4%. If the sacrifice ratio is 2, what cumulative output loss should it expect?

1. 3% of one year's GDP
2. 8% of one year's GDP
3. 20% of one year's GDP
4. 12% of one year's GDP

Question 5 · easy

Core inflation is usually measured by excluding from the price index

1. items whose prices are administered by government
2. items with volatile prices, such as food and fuel
3. all services
4. imported goods

Question 6 · medium

In the Reserve Bank of India's liquidity adjustment facility corridor since 2022, which instruments form the ceiling and the floor around the policy repo rate?

1. The Standing Deposit Facility rate is the ceiling and the Marginal Standing Facility rate is the floor
2. The Marginal Standing Facility rate is the ceiling and the Standing Deposit Facility rate is the floor
3. The bank rate is the floor and the reverse repo rate is the ceiling
4. The cash reserve ratio is the ceiling and the statutory liquidity ratio is the floor

Question 7 · hard

A failed monsoon pushes up vegetable and pulse prices sharply. What is the standard argument for how monetary policy should respond?

1. Raise interest rates immediately and sharply to reverse the food price rise before it becomes embedded in headline inflation
2. Cut interest rates to help farmers who lost their crops
3. Look through the first-round rise, which interest rates cannot reverse, but tighten if it spills into wages and expectations
4. Ignore food prices entirely because they are outside monetary control

Question 8 · medium

How does a rise in interest rates tend to affect private storage of grain after harvest?

1. It raises the carrying cost of stocks, so traders and farmers store less and sell more at harvest
2. It raises the harvest-time price by increasing storage demand from traders who borrow to buy grain
3. It lowers the carrying cost of stocks, so more is stored
4. It has no effect because storage depends only on warehouse charges

Question 9 · medium

If a government's primary deficit is zero, its fiscal deficit

1. equals its revenue deficit
2. equals its capital expenditure, meaning all borrowing finances new public assets such as roads
3. equals its interest payments, meaning it borrows only to pay interest on past debt
4. is also zero

Question 10 · hard

A developing country keeps its currency officially overvalued for many years. What is the likely effect on its export-crop farmers?

1. They are unaffected, because world prices are set in dollars
2. They are subsidised, because imported inputs such as fertiliser become cheaper and this outweighs all other effects on their farm incomes
3. They are implicitly taxed, as each export dollar buys less domestic currency while imported food competes at artificially low prices
4. They gain, because an overvalued currency raises world demand for their crops