[Solved] Which of the following is TRUE about the role of Government Securities in the Indian economy? — Ans: They help in controlling inflation by absorbing excess liquidity | Financial Awareness

Financial Awareness - Risk, Stability & Emerging Finance

Which of the following is TRUE about the role of Government Securities in the Indian economy?

AThey help in controlling inflation by absorbing excess liquidity

BThey are primarily issued by private sector banks

CThey are used to finance private sector projects

DThey have no impact on monetary policy

Step-by-Step Solution

Step 1: Understand the economic role of Government Securities
Government Securities help the government finance its deficit and RBI manage liquidity, which influences inflation control.
Step 2: Analyze the options
They absorb excess liquidity, helping control inflation (true). They are issued by the government, not private banks (false). They finance government expenditure, not private projects (false). They impact monetary policy (false).
Final Answer:
They help in controlling inflation by absorbing excess liquidity → Option A
Quick Check:
G-Secs absorb liquidity to control inflation = correct ✅

Quick Trick: Link government securities with liquidity and inflation control.

Common Mistakes:

Assuming private banks issue G-Secs or that G-Secs don't affect monetary policy.

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