Detailed Explanation:

Answer: Option 2 — 2 only

An expansionary monetary policy aims to increase money supply and lower interest rates to stimulate economic activity. Statement 2 (increasing the Marginal Standing Facility Rate) is the only action the RBI would NOT take under expansionary policy, as it contradicts the goal of reducing borrowing costs for banks.

✅ Statement 1 – Correct: Cutting and optimizing the Statutory Liquidity Ratio allows banks to lend more money, directly supporting expansionary policy.

❌ Statement 2 – Incorrect: Increasing the MSF Rate makes borrowing from RBI more expensive for banks, which restricts liquidity and contradicts expansionary objectives.

✅ Statement 3 – Correct: Cutting Bank Rate and Repo Rate are core expansionary tools that encourage banks to borrow and lend at lower rates, boosting credit and economic activity.

📝 Short Notes: RBI Monetary Policy Tools

• Repo Rate: Rate at which RBI lends to banks; cutting it encourages borrowing and lending (expansionary).
• Reverse Repo Rate: Rate at which RBI borrows from banks; cutting it reduces incentive to park funds with RBI.
• Bank Rate: Long-term lending rate used for discounting bills; lower rates support credit expansion.
• Statutory Liquidity Ratio (SLR): Percentage of deposits banks must keep in liquid form; reducing it frees up capital for lending.
• Marginal Standing Facility (MSF) Rate: Emergency borrowing rate for banks; higher rates restrict liquidity (contractionary tool).
• Cash Reserve Ratio (CRR): Percentage of deposits held as reserves; reducing it increases lendable resources.