Daily Current Affairs Quiz: January 6, 2026

Answer: B [Only two]
Explanation:

Statement 1 is correct: Increasing interest rates makes borrowing costlier, reduces credit growth and consumption, and lowers aggregate demand. This demand compression helps ease price pressures and is a standard anti-inflationary monetary policy tool.

Statement 2 is correct: Reducing government spending lowers fiscal stimulus and aggregate demand in the economy. With fewer demand-side pressures, inflationary tendencies decline, especially when inflation is driven by excess demand.

Statement 3 is incorrect: Expanding the money supply increases liquidity and purchasing power, which raises aggregate demand. This generally fuels inflation rather than controlling it, unless the economy is facing deflationary conditions.

Answer: A [A policy related to government revenue generation and expenditure to influence the economy]
Explanation:

Option A is correct: Fiscal policy refers to the use of government revenue measures (taxation, borrowing) and public expenditure to influence macro-economic outcomes such as growth, inflation, employment, and income distribution.

Option B is incorrect: Population control policies relate to demographic or social policy, not fiscal management.

Option C is incorrect: Regulation of foreign trade and exchange rates falls under trade policy and exchange-rate policy, not fiscal policy.

Option D is incorrect: Regulation of money supply and interest rates is the domain of monetary policy, implemented by the central bank (e.g., RBI), not fiscal authorities.

Answer: C [2 and 3 only]
Explanation:

Statement 1 is incorrect (RBI would do this): Under an expansionary monetary policy, the RBI cuts CRR and relaxes SLR to increase liquidity and enhance banks’ lending capacity.

Statement 2 is correct (RBI would not do this): Increasing the Marginal Standing Facility (MSF) rate makes emergency borrowing costlier for banks, which is contractionary, not expansionary.

Statement 3 is correct (RBI would not do this): While cutting the Bank Rate is expansionary, increasing the Reverse Repo Rate encourages banks to park funds with RBI, reducing liquidity—hence contradictory to expansionary policy.

Answer: D [Government spending]
Explanation:

Option A is incorrect: Open Market Operations involve the buying and selling of government securities by the central bank and are part of monetary policy.

Option B is incorrect: Interest rate targeting is a monetary policy tool used by the central bank to control inflation and liquidity.

Option C is incorrect: Changing the reserve ratio (CRR/SLR) is a monetary policy instrument, not a fiscal one.

Option D is correct: Government spending is a core fiscal policy instrument, used by the government to influence economic growth, employment, and demand through budgetary allocations and public expenditure decisions.

Answer: A [1 only]
Explanation:

Statement 1 is correct: When fiscal deficits are financed through central bank borrowing (deficit monetisation), money supply increases, creating demand-pull inflationary pressures in the economy.

Statement 2 is incorrect: Contractionary fiscal policy reduces government spending or raises taxes, which generally dampens aggregate demand and can slow economic growth in the short run rather than ensure it.