[DRAFT] Mohali macro quiz: monetary plumbing and the GDP shell-companies trick

From The Tantri Files — verbatim writing from Prof. Tantri’s WhatsApp messages, with his blessing. The Mohali March 2025 INFS final ran heavier on operational plumbing than the Hyderabad final the next year. Here are the questions Tantri walked the group through, with his answer keys.

Why this exists

Tantri sent the answer key into the group the day after the exam — partly because he was proud of it, partly because Mohali had performed well and he wanted the rest of the cohort to see what they’d missed.

Tantri. Pleasantly surprised by the scores. Average of 21/35 in this exam — and that too in term 7 — is super motivating. The exam was actually a tough exam with none of the aboves creating all sorts of trouble. Many have scored 27 plus. Someone has gone as high as 30/35.

A day later he added:

Noticed one more thing in Mohali scores. For every question, the option having the highest frequency is — guess what — the right answer. This cannot be a fluke. This means whatever people have learned, they have learned properly but left out some parts (Instagram in class may be). The only exception is the Shell company question, which is truly out of the syllabus.

Below are the questions and his explanations.

Q1 — When does aggregate liquidity not increase despite RBI doing VRRs?

Under which of the following situations does aggregate liquidity not increase much (proportionately) despite RBI conducting repeated VRRs?

a. When the bank rate is high b. When MSF is low c. When Repo is low d. When SDF is high

Answer: D.

If parking pays well, banks won’t keep the reserves they’ve been handed — they’ll send them right back. The VRR injection shows up on the way in, but the SDF parking shows up on the way out. Net effect on lending: nothing.

Q2 — Why didn’t lending increase after demonetisation?

Why did lending not increase disproportionately after the demonetisation of 2016?

a. Banks did not have deposits b. Savers moved to mutual funds c. Banks did not have sufficient capital d. None of the above

Answer: C.

Deposits flooded into the banks. The constraint wasn’t deposits — it was capital. Without enough capital to back new loans, the deposits sit on the asset side as cash and government bonds.

Q3 — Bank provisioning and bankruptcy recovery

Suppose a bank has created 80% provisions on a loan, including outstanding interest. It recovers 25% of the loan in a bankruptcy case. Which of the following is true?

a. The bank records 75% of the loan as a loss b. The bank records 5% of the loan as a loss c. The bank records 25% of the loan as a gain d. None of the above

Answer: D — none of these neatly captures it. The bank had already taken an 80% loss in earlier years through provisions; recovering 25% writes back 5% as a gain this year, while the cumulative P&L impact across years is a 75% loss. Each option is partially true but none captures the full picture.

Q4 — Time preference and interest rates

In country A, people value today disproportionately more than tomorrow than in country B. Suppose there is a 100% exchange of population — what is likely to happen to nominal interest rates in country A?

a. Increase b. Decrease c. Remain unchanged d. Information not sufficient

Answer: B.

A population that values the future more is a population willing to save more at any given rate. More saving at any rate means rates fall. The original Country A’s people went to B; B’s people came to A. A is now full of patient savers — its rates fall.

Q5 — Why don’t banks charge full screening costs upfront?

Why are banks not able to charge all the costs they incur on screening small borrowers upfront?

a. High interest rates are illegal b. High interest rates upfront can impact project choices c. Competition does not let them do so d. All of the above

Answer: B.

This is the classic moral hazard answer. If you charge a borrower 15% upfront because the screening was expensive, you’ve made the borrower’s project NPV-negative unless they take much riskier bets. The bank ends up with adverse selection on top of adverse selection. So the cost gets amortised — partly through higher rates over the loan life, partly through priority-sector cross-subsidies.

He elaborated separately:

Tantri. The point is in some cases, moral hazard restricts the ability to charge in one year. In other words, what if the total cost is say 15 percent? In that case, if I charge all at once, I am incentivising you to gamble and put my money at risk.

Q6 — Shell companies and GDP accounting

Which of the following is true regarding accounting for shell companies in national statistics?

(Hint: Shell companies are created only to layer output into different firms — mostly to avoid taxes)

a. Including them overstates the GDP b. Excluding them understates the GDP c. Including them overstates the nominal GDP but understates the real GDP d. All of the above

Answer: B.

Tantri. Note that shell companies are created to transfer output from productive companies to non-existent (paper) companies. Thus, leaving out shell companies leads to under-reporting of GDP as output attributed to them gets left out.

He clarified, when classmates pushed back:

Tantri. The original company gets counted. But its output is not counted fully because it has transferred output to the shell company. Suppose, company A produces 100 — reports 60 in its balance sheet and 40 in a shell company’s balance sheet. Then leaving out the shell company will under-report output.

Q7 — What the Geeta Gopinath QJE paper actually showed

A recent paper by Geeta Gopinath et al. in the Quarterly Journal of Economics finds that growth fell only for one quarter after demonetisation. The economy recovered within two quarters. From the above findings, we can say:

a. The immediate recovery suggests the classical view is true b. The immediate recovery suggests money is neutral c. All views are wrong d. Keynesian view approximates reality in the short run at least

Answer: D.

In the classical world, money is neutral and a sudden contraction shouldn’t move real GDP at all. In the Keynesian world, prices are sticky and money matters in the short run. Some drop followed by quick recovery is consistent only with sticky-prices in the short run and price flexibility kicking in within a few quarters — i.e., the Keynesian view.

Q8 — The MSF, by elimination

Marginal Standing Facility:

a. Is the type of loan that the RBI governor lends to banks when he/she is standing b. Is a type of emergency short-term loan given by banks to RBI c. Is an unsecured loan d. None of the above

Answer: D.

MSF is a secured overnight loan from the RBI to banks (against G-secs from the SLR), not the other way around — and (b) reverses the direction. Tantri’s playful (a) is in there to remind you what MSF isn’t.

Q9 — When does the call rate go below the reverse repo?

Suppose the RBI reverts to fixed-rate reverse repos by dropping SDF. Which one of the following is likely to occur more often after that?

a. Call rate = repo rate b. Call rate > repo rate c. Call rate > reverse repo d. Call rate < reverse repo

Answer: D.

Without the SDF as a guaranteed parking floor, banks have less incentive to lend out their excess. The interbank call rate falls below even the reverse repo because there are no takers — the floor of the corridor goes from “binding” to “porous”.

Q10 — A rate cut in an open economy

In a Keynesian world with exports and imports, which of the following is true?

a. A rate cut by the central bank has a larger stimulus than in a closed economy (where there is no international trade) b. A rate increase by the central bank has a smaller contractionary effect than in a closed economy c. Both of the above d. None of the above

Answer: A.

A rate cut depreciates the currency, which boosts net exports — adding a stimulus channel that doesn’t exist in a closed economy. This is also why monetary policy is more effective in an open economy.

Q11 — Depression as an inflation-expectations failure

An economy could slip into a depression when:

a. When inflation expectations get unanchored, the central bank keeps the nominal rate unchanged b. When inflation expectations get unanchored, the central bank disproportionately reduces the nominal rate c. When inflation expectations remain anchored, the central bank reduces the nominal rate d. None of the above

Answer: A.

If inflation expectations crash but the central bank holds the nominal rate steady, the real rate jumps. High real rates kill investment and consumption. This is the textbook account of how the early years of the Great Depression turned into a depression — the Fed didn’t ease enough, and real rates ran very high while expectations collapsed.

Q12 — When the multiplier of G is exactly 1

Assume the world is perfectly Keynesian and the marginal propensity to consume out of government purchases is zero. What is the likely fiscal multiplier of increased government expenditure in this case?

a. 1 b. 0 c. Between 1 and 0 d. Less than zero

Answer: A.

If MPC out of government spending is zero, there are no second-round consumption effects. You get exactly the rupee that was spent. So the multiplier is 1 — not less than 1, but not more either.

Q13 — Write-off vs waiver

“Writing off an asset as a bad asset is as good as a waiver.” Select the most appropriate statement.

a. True because the bank takes a hit on its financial statements b. False because writing off and waiver are spelled differently c. True, because only governments can do waivers d. False because write-off does not lead to loss of the right to recovery

Answer: D.

A waiver extinguishes the loan — you no longer owe the money. A write-off is an accounting decision; the bank still has every right to recover later. The two are routinely conflated in newspaper headlines and political speeches.

Q14 — Supply shock and inflation expectations

A supply shock requires a monetary policy response if inflation expectations are

a. Adaptive b. Rational c. Both the above d. None of the above

Answer: A.

In a rational expectations world, a supply shock is understood to be one-off and inflation expectations don’t drift. In an adaptive world, today’s high inflation feeds into tomorrow’s expected inflation, and the bank has to act to prevent the drift. The answer depends entirely on which world you think you’re in.

Editor’s notes

These are selected questions from Tantri’s INFS final at the Mohali campus, March 2025, with his own explanations. Reproduced verbatim from messages he sent into the INFS Co25 WhatsApp group on March 28–29, 2025; sub-headings, light contextual prose, and a few clarifying expansions of his terse answer notes are editorial. Student-facing items like the Bajaj-Allianz follow-up question, which referenced specific in-class discussions, have been omitted.

Pair this with the Hyderabad March 2026 exam — same instructor, much heavier on history and pop-culture vignettes that year.