[DRAFT] Tantri's exam: history-laced macro questions

From The Tantri Files — verbatim writing from Prof. Tantri’s WhatsApp messages, with his blessing. On March 25, 2026, the day of his INFS final, Tantri sent his explanations of the trickier questions into the group. He frames them as exam questions — but each is really a small lecture on monetary economics, dressed up as a story.

Why this post exists

Tantri’s exams are unusual. The questions are not “compute the inflation rate given X and Y.” They are stories — Nathan Rothschild at the Battle of Waterloo, Pizarro arriving in Spain with Inca gold, George Soros breaking the pound, the Merchant of Venice’s pound-of-flesh contract — and the candidate has to identify which monetary or macro principle is at work.

He sent the explanations into the WhatsApp group through the day, half because he was proud of them and half because he was worried students would challenge them. They are reproduced here as he wrote them.

Q1 — Nathan Rothschild and the Battle of Waterloo

Nathan Rothschild financed the Duke of Wellington in the Battle of Waterloo. However, the moment he heard about the outcome of the war (Napoleon lost and the Duke won — I again forgot his name), he was deeply alarmed.

Why?

A. He was long on government bonds and short on gold, expecting the war to be prolonged B. He was sitting on cash and worried about likely inflation C. He was long on gold and short on bonds and miscalculated the duration of the war D. None of the above

Hint (for non-finance students): “Long” means you buy and hold an asset. “Short” means you borrow and sell an asset today, expecting to buy it back later. With every question my hope is you will learn something new. Close the cheat sheet and open your mind.

Answer: C.

Nathan Rothschild expected a long war, which would lead to collapse of the British bonds (bunds as they were called) and increase in the price of gold. So he was long on gold and short on bonds. Sudden end to war would have led to the opposite of this — that means gold would collapse and bonds rise. That is why he was worried when he heard that the war ended quickly.

He reached before the official courier (taking life risks), came, and reversed his position — sold gold and bought bonds. That is how he made money. He would have gone bankrupt if he had held on to his position. Speed saved him and not any genius anticipation.

Q2 — The Spanish empire and Inca gold

We learned in class that a Spanish commander attacked the Incas and brought a large amount of gold to Spain, which used gold coins as currency at that time. Unfortunately, this led to massive inflation.

Under what circumstance would this not have caused inflation?

A. There was a drought that year (negative supply shock) B. Spain exported gold and imported muslin cloth from India C. The government used all the gold to pay salaries D. All of the above

Answer: B.

Using gold for paying for imports will not increase local money supply, and therefore no inflation.

Q3 — Dhurandhar and Pakistan’s fake rupees

A recent movie Dhurandhar claims that Pakistan was printing fake Indian currency before demonetisation. Under what circumstance would this fake currency have effectively substituted for the correct monetary policy response?

A. Consumer demand collapsed and the RBI aggressively cut interest rates B. Consumer demand is booming and RBI has kept the interest rate below the neutral rate C. Consumer demand is booming and the RBI kept the repo rate above the neutral rate D. Consumer demand is depressed and the RBI has kept the rate high to avoid forex outflows

Answer: D.

Fake currency acts like unplanned monetary expansion, so it “helps” only when demand is weak and policy is too tight (rates kept high).

Q5 — George Soros against the pound

We know the George Soros story. The German government had to spend heavily on unification, but the British pound was pegged to the German Mark under the ERM. Soros massively shorted the pound and made billions.

Which of the following assumptions did he not make?

A. The German government would finance the spending on unification B. Britain did not have vast forex reserves and gold C. British politicians care about growth D. British public care more about inflation than growth

Answer: D.

I think this is the only genuinely difficult question. He needed the opposite assumption. For the peg to break, policymakers must prioritise growth over inflation, not inflation over growth. If they prioritised inflation, they would have easily hiked rates and stopped currency depreciation.

Q6 — MSS, the bond that locks money up

OMG. I am now realising that I missed one more important instrument altogether — MSS (the Market Stabilization Scheme). How exactly were you planning to face the real world without knowing this? Let me correct my unpardonable folly here.

MSS refers to special bonds issued by the RBI on behalf of the government, where the money (i.e., reserves) received is kept under lock and key. Think of it as money being permanently sterilised.

To understand why this matters, compare this with a normal bond issue. In a regular bond issuance, the RBI issues bonds on behalf of the government and banks pay for them using reserve money. That reserve money goes to the government. But sooner or later, when the government spends on salaries, subsidies, or social welfare, that money flows back into the banking system.

Under MSS, this does not happen. The reserves collected are not spent. They do not come back. They are effectively removed from circulation.

When do you think India issued MSS?

A. In 2013, when there was a huge outflow of dollars B. In the early 2000s, when India issued Resurgent India Bonds for NRIs to offset the impact of sanctions imposed by the US (if you do not know why, call your high school teacher) C. During COVID, when the economy was struggling and liquidity was scarce D. Recently, to offset Trump tariffs

Answer: B.

MSS is used to permanently absorb money. It is done when too much reserves are created. Recently it was done during demonetisation.

Q7 — Operation Twist and the Rupee

I was just about to submit the question paper when AAs gently reminded me that I have forgotten yet another important instrument. Operation Twist. Clearly, I was planning to send you into the real world half-armed. Let me fix that. Please don’t tell the Dean.

So what is Operation Twist? A couple of years ago, the RBI decided that short-term interest rates, say up to one year, were too low, while long-term interest rates, ten years and beyond, were too high. Instead of changing the overall liquidity in the system, the RBI did something clever. It bought short-term bonds and sold long-term bonds. The idea was to push up short-term yields and bring down long-term yields without injecting or withdrawing net money from the system. No new money was created. No money was destroyed. Only the maturity structure of interest rates was altered.

Now assume the following: inflation expectations remain unchanged. Nothing else in the economy changes. Given this, which of the following is the most reasonable expectation regarding the Rupee?

A. It is reasonable to expect an immediate depreciation of the Rupee B. It is reasonable to expect an immediate appreciation of the Rupee C. No change in the Rupee is a better expectation D. None of the above

Answer: B.

Short term real rates are expected to increase. That’s all.

Q8 — Two villages and rigid wages

Imagine two identical villages, A and B. In year 1, they differ only in rainfall. Village A receives excellent rainfall, whereas village B receives normal rainfall. Assume that excellent rainfall improves productivity. For instance, someone who used to produce 5 kg of rice can now produce 10 kg. This higher productivity also raises the reservation wage. Given this, which of the following is true?

A. If the world is classical, and both villages receive similar rainfall next year, village A will have lower unemployment B. If the world is Keynesian and wages are downward rigid, and both villages receive the same rainfall in period 2, village A will have higher unemployment C. If the world is Keynesian and wages are downward rigid, and village A receives excellent rainfall while village B receives normal rainfall even in year 2, village A will have higher unemployment D. Village B will have higher unemployment in period 2 irrespective of the model

Answer: B.

In Village A nominal and real wages will go up in period 1 (given) but they will not fall in period 2 when productivity becomes normal. The only way this can correct is through unemployment. There is real-world evidence for this. So, when you see a place having a sudden windfall, you will have to worry about this problem when economy becomes normal.

Q9 — When the Fed raised rates during the Depression

During the Great Depression, the US Federal Reserve once increased interest rates (read A Monetary History of the United States by Friedman and Schwartz). Why would they do that when the economy was collapsing?

A. To control inflation B. To control inflation expectations C. To prevent outflow of gold D. None of the above

Answer: C. Straightforward.

Q11 — Did Chanakya invent Keynesian stimulus?

Some Indic thinkers suggest that Chanakya anticipated Keynes by recommending that kings undertake construction (such as building palaces) during droughts. While Chanakya was a great strategist, claiming that he anticipated Keynesian economics is far-fetched because:

A. The king had to pay out of his own wealth, which is effectively a tax on himself B. Kings had to increase taxes on ordinary citizens C. There was no fiat currency D. All of the above

Answer: C (and D).

There was no fiat currency during Chanakya. Keynesian economics requires bringing worthless money and using the fact that people do not realise. Cannot do with gold coins. You spend on something — you will have to cut on others. I will give it both C and D. C is required; cannot give it to A or B without C.

Q12 — Medici bill discounting

Bill discounting by Medici banks effectively:

A. Increased inflation B. Improved liquidity C. Reduced trade D. Increased gold reserves

Answer: B. Liquidity — you can discount it close to NPV.

Q13 — Hyperinflation, guaranteed

In unexpected hyperinflation, which position guarantees profit (ignoring default risk)?

A. Lend money B. Hold cash C. Borrow money D. Hold real estate

Answer: C. C surely will. The word guarantee is key here. You may make money in others.

Q14 — Why does lending freeze in a crisis?

During a crisis, RBI injects large reserves but lending does not increase. Why?

A. CRR too high B. Banks unwilling to lend due to risk C. Deposits too low D. Currency demand too high

Answer: B.

This is what happened after the Global Financial Crisis. All money goes to SDF. Without lending, no money creation.

Q15 — The Merchant of Venice and creditor rights

In The Merchant of Venice, a pound of flesh was pledged as collateral for a loan. The court eventually rules that the lender can enforce the collateral but cannot shed even a drop of blood.

Which of the following judgments/laws are in the same spirit?

A. Government enacts the Insolvency and Bankruptcy Code (IBC), under which the borrower (promoter) loses control over the firm once the case is admitted B. Court rules that banks can file recovery cases (under SARFAESI) only in the borrower’s location, whereas earlier banks could choose the location C. RBI increases penalties for wilful default D. Government extends strict recovery laws to non-banks as well

Answer: B.

Realise that the judgement is dilution of creditor rights. Rest are increase in creditor rights.

Q17 — Why ordering on Zomato isn’t growth

I used to walk to a nearby restaurant for dinner. Now I order food using Zomato. This gives employment to the delivery person and leads to higher long-term economic growth.

What is wrong with this statement?

A. It does not explain how I earn more to pay more B. It does not explain whether the Zomato delivery person will spend or save C. It does not explain whether I would have spent or saved the money D. All of the above

Answer: A.

Long term growth happens when I earn and spend. Keynesian explanations based on demand do not work for long-term growth.

Q18 — The basis of fiat money

In a fiat monetary system, money derives its value from:

A. Gold backing B. Intrinsic value C. Sovereign backing and acceptability D. Commodity convertibility

Answer: C. Straightforward.

Q19 — What government spending becomes

Government spending converts reserves into:

A. Bonds B. Deposits C. Gold D. Capital

Answer: B. Deposits. Will take D and A also, but not C.

Editor’s notes

These questions and explanations were posted into the Finance Enthusiasts WhatsApp group on March 25, 2026, the evening of the INFS final. They are reproduced verbatim with light formatting (sub-headings, italicised asides). A few questions Tantri sent are omitted here only because they referenced course-specific shorthand without enough context to stand alone.

Reading them back-to-back, you start to see what Tantri thinks an economics education actually is: not a rule-set to apply, but a habit of recognising which historical or human story you’re inside of, and then picking up the right tool.