Money and Banking Class 12 MCQ

Money and Banking Class 12 MCQ
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Multiple choice questions of Subject Commerce Money and Banking Class 12 MCQ ( Money and Banking Class 12 MCQ Quiz ) for Entrances (Entrance Exam) Conducted by different Central and State Universities are given below.

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Money and Banking Multiple Choice Questions and Answers

1. Money supply is governed by

(a) planning commission

(c) finance ministry

(b) Central Bank

(d) commercial banks

Ans. b

2. If the demand for money is perfectly interest inelastie, the LM schedule will be

(a) upward sloping

(c) horizontal line

(b) downward sloping

(d) vertical line

Ans. d

3. The transaction version of the quantity theory of money was presented by Irving Fisher in the form of

(a) P= MV /T

(c) M= PV/T

(b) T=MV /P

(d) V= PT/M

Ans. a

4. Monetarist says

(a) an increase in the money supply is likely to lead to inflation

(b) a monetary stimulus is ineffective if firms costs of production also rises

(C) long-run aggregate supply curve is vertical at the level of natural rate of unemployment

(d) All of the above

Ans. d

5. Money kept for speculative motive is called

(a) active money

(c) near money

(b) passive money

(d) dear money

Ans. b

6. According to Keynes, with cash money. is the reward for parting

(a) profit

(c) interest

(b) rent

(d) None of these

Ans. c

7. If the demand for money depends on the interest rate, the velocity of circulation is

(a) constant and the quantity theory of money does hold

(b) not constant and the quantity theory of money does hold

(c) not constant and the quantity theory of money does not hold

(d) constant and quantity theory of money does not hold

Ans. c

8. Lower interest rates

(a) reduce business investment spending

(b) cause the aggregate demand curve to shift left

(c) encourage people to borrow more and often to spend more on housing

(d) None of the above

Ans. c

9. Unlike Fisher’s transaction equation, neo-classical monetary theory links prices to

(a) supply of money

(b) demand for money

(c) quantity of money in bank

(d) None of these

Ans. b

10. Which one of the following is not a function of money?

(a) Medium of exchange

(b) Means of barter

(c) Standard of deferred payment

(d) Store of value

Ans. b

Money and Banking Class 12 MCQ

11. The inventory approach to the transaction demand suggests that the transaction component of the demand for money is

(a) negatively related to nominal value

(b) negatively related to interest rates

(c) negatively related to real wealth

(d) negatively related to real income

Ans. b

12. Fisher’s approach was based on . function of money

(a) store of value

(b) medium of exchange

(c) unit of account

(d) transfer of value

Ans. b

13. Velocity is calculated as

(a) nominal GDP/M

(c) real GDP/M

(b) M/real GDP

(d) M/nominal GDP of transaction demand

Ans. a

14. According to Keynes, for money is very high.

(a) interest elasticity

(c) supply elasticity

(b) income elasticity

(d) demand elasticity

Ans. b

15. According to the Fisher version, there exists inverse relationship between

(a) quantity of money and value of money

(b) quantity of money and price level

(c) quantity of money and trade activities

(d) None of the above

Ans. a

16. If the money supply is $ 2 trillion and velocity is 5, then nominal GDP is

(a) $1 trillion

(c) $ 5 trillion

(b) $ 2 trillion

(d) $ 10 trillion

Ans. d

17. Money supply is which concept?

(a) Stock

(c) Neither ‘a’ nor b

(b) Flow (d) Both ‘a’ and b’

Ans. a

18. People might be willing to hold money balances that pay little or no interest because

(a) they want funds available to buy goods and services

(b) they want funds available for emergency purposes

(c) they want funds available for speculation

(d) All of the above

Ans. d

20. Under the minimum resource system, RBI has to maintain minimum resources of

(a) 100 crore

(b) 115 crore

(c) 200 crore

(d) 350 crore

Ans. c

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21. Historically, M(2) velocity

(a) is constant

(b) varies with exchange rates

(c) is more stable than M, velocity

(d) has no relationship with the M, opportunity costs a

Ans. a

22. The ratio of change in total deposits to change in reserves is called

(a) money multiplier

(C) credit multiplier

(b) deposit multiplier

(d) foreign trade multiplier

Ans. b

23. According to the quantity theory of money, what happens if the money supply doubles?

(a) Aggregate output doubles

(b) The price level doubles

(c) Velocity is halved

(d) Velocity doubles

Ans. b

24. Transaction demand for money is proportional to

(a) income

(c) money supply

(b) rate of interest

(d) investment

Ans. a

25. For the classical economists quantity theory of money provided an explanation of movements in the price level. Movements in the price level result

(a) primarily from changes in the quantity of money

(b) only partially from change’s in the quantity of money

(c) solely from changes in the quantity of money

(d) from changes in factors other than the quantity of money

Ans. c

26. If the money supply is $ 500 and nominal income is $ 4,000, the velocity of money is

(a) 1/20

(c) 8

(b) 1/8

(d) 20

Ans. c

27. According to Keynes, which is not a motive behind the demand for money? 

(a) Transaction motive

(b) Speculative motive

(C) Precautionary motive

(d) Budget deficit/surplus motive

Ans. d

28. The demand for money is

(a) the willingness of people to hold money at different interest rates

(b) not determined by precautionary motives

(c) the amount of money banks are willing to lend at various interest rates

(d) None of the above

Ans. a

29. Historically, velocity

(a) grews at a constant rate

(b) increases and decreases

(c) is constant

(d) declines at a constant rate

Ans. b

30. Keynes liquidity preference theory indicates that the demand for money is

(a) negatively related to bond price

(b) constant

(C) negatively related to interest rates

(d) positively related to interest rates

Ans. c

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31. The empirical evidence regarding the velocity of money indicates that velocity tends to be…that is, velocity…. when economic activity contracts.

(a) procyclical, increases

(c) countercyclical increases

(d) countercyclical, declines

(b) procyclical, declines

Ans. b

32. Keynes speculative motive for holding money is based on money’s function as a

(b) unit of account

(a) source of ino ne

(c) medium of exchange

(d) store of value

Ans. d

33. Which of the following doesn’t influence the Friedman demand for money?

(a) The return on bonds relative to the return on money

(b) Permanent income

(c) Budget deficits/surpluses

(d) The return on stocks relative to the return on money

Ans. c

34. The equation of exchange is

(a) M + V=P+Y

(c) M x P=Ux Y

(b) M + Y = V + P

(d) M x V= Px Y

Ans. d

35. Until great depression, economists did not recognize that velocity

(a) declines during rapid economic expansions, since money growth tends to keep pace

(b) tends to decline during economic contractions

(c) declines during severe economic contractions

(d) increases during severe economic contractions

Ans. c

36. Which of the following event(s) will most likely cause a decrease in money supply?

(a) An increase in the ratio of reserves to deposits

(b) A Central Bank’s purchase of bonds

(c) Both ‘a’ and ‘b’

(d) None of the above

Ans. a

37. The demand for money unexpected contingencies is called the

(a) insurance motive

(c) transactive motive cushion against as

(b) speculative motive

(d) precautionary motive

Ans. d

38. RBI issues currency on the basis of

(a) minimum resource system

(b) currency

(c) deposits

(d) None of these

Ans. a

39. The quantity theory of money holds that

(a) the velocity of money times the money multiplier equals the total spending in the economy

(b) the price level equals the money supply times the money multiplier

(c) the quantity of money in the economy multiplied by velocity will be equal to total spending

(d) the quantity of money in the econorny has little effect on total spending and income

Ans. c

40. A central question in monetary theory is whether or to what extent the quantity of money demanded is affected by changes in

(a) the price level

(c) inflation

(b) interest rates

(d) income

Ans. b

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41. In the liquidity trap, the money demand curve

(a) is vertical

(b) is horizonital

(d) is negatively sloped

(c) is positively sloped

Ans. b

42. It the reserve deposit ratio is 5% and currency equals 500, all held in reserves, how much will be the money supply?

(a) rs. 500

(b) rs. 1.000

(c) rs.  2,500

(d) rs. 10,000

Ans. d

43. Money supply is autonomous determined in case of

(a) Keynes theory

(b) Classical theory

(c) IS-LM model

(d) None of the above

Ans. d

44. According to the empirical evidence on interest rates and money demand,

(a) a liquidity trap has been a problem in India, as changes in the money supply do not affect interest rates

(b) the demand for money is rnot affected by interest rates, so the quantity theory is correct

(c) the demand for money is extremely sensitive to interest rates

(d) the demand for money is sensitive to interest rates, but a liquidity trap does not exist

Ans. d

45. The Baumol-Tobin model of demand

(a) demonstrated that the transaction component of money demand is negatively related to interest rates

(b) demonstrated that the transaction component of money demand is not related to interest rates

(c) demonstrated that the transaction component of money demand is positively related to interest rates

(d) demonstrated that the transaction component of money demand is negatively related to income

Ans. a

46. Which of the following is the correct sequence when the RBI changes monetary policy?

(a) The supply of money remains unchanged, but the amount of business investment spending shifts to the right

(b) The demand for money changes, investment spending changes and aggregate demand changes

(c) The supply of money changes, interest rates change, investment spending changes and aggregate demand changes

(d) None of the above

Ans. c

47. The velocity of money is

(a) the number of times per year a rupee is used to buy goods and services produced in India

(b) the rate of which new rupee note can be printed

(c) the number of times per year a rupee is used to pay wages

(d) the same as the inflation rate

Ans. a

48. The absence of money illusion means that

(a) as the money supply doubles, the demand for money doubles

(b) as interest rates doubles the demand for money doubles

(c) as real income doubles, the demand for money doubles

(d) as the price level doubles, the demand for money doubles

Ans. c

49. Banks and government are the ……… of money.

(b) producers

(d) None of these

(a) consumers

(c) users

Ans. b

50. According to the Loanable Funds Theory, the rate of interest is a function of

(b) desire to hoard money

(a) investment

(d) All of these

(c) quantity of money

Ans. d

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51. Arrange the following theories in the chronological order.

1. Restatement of Quantity Theory

2. Income Theory

3. Quantity Theory

4. Cash Balance Approach

Codes (a) 1, 2, 4, 3

(b) 3, 1, 2, 4

(c) 4, 3, 1, 2

(d) 3, 4, 2, 1

Ans. d

52. It is difficult to determine if the velocity of money is

(a) it is difficult to measure the value of nominal GDP over time constant over time because

(b) it is difficult to measure the demand for money over time

(c) whether velocity is constant or not may depend on how the money supply is measured

(d) there has been very little fluctuation in the money supply over time

Ans. c

53. Loans create deposits and deposits create

(b) money

(a) teserves

(c) loans

(d) All of these

Ans. c

54. When the RBI conducts monetary restraint

(a) the demand curve for money shift rights

(b) the supply curve for money shifts left

(c) the slope of the demand curve for money changes

(d) there is a decrease in interest rates

Ans. b

55. The quantity theory of money is a theory of how

(a) the nominal value of aggregate income is determined

(b) the money supply is determined

(c) the real value of aggregate income is determined

(d) the interest rates are determined

Ans. a

56. According to monetarist theory

(a) a monetary stimulus causes increased output

(b) interest rates are an important tool to influence economy

(c) the Central Bank should regulate the quantity of money the economy and not interest rates

(d) None of the above

Ans. c

57. In case of Keynes theory, interest rate is related to

(b) national income

(a) saving

(c) money supply

(d) money demand

Ans. d

58. If depositors begin to deposit more currency in bank then

(a) bank reserves increases

(b) monetary base in unchanged

(c) bank reserves are unchanged

(d) monetary base decreases

Ans. b

59. When interest rate gets very low, sometimes people don’t want to borrow because economic conditions are bad and they hoard money. This is called

(a) the discounted borrower hypothesis

(b) the old women is a shoe effect

(c) crowding out

(d) the liquidity trap

Ans. d

60. Which two of the following would (other things equal) result in a rise in prices under the ‘equation of exchange’ in the quantity theory of money?

1. Fall in the amount of money in circulation.

2. Fall in the rate at which a given amount of money in circulation is passed from one person to another.

3. Rise in the rate at which a given amount of money in circulation is passed from one person to another. a one

4. Greater the fraction of a given amount of money in circulation which is held as an asset.

5. Lower the fraction of a given amount of money in circulation which is held as an asset.

Select the correct answer using the codes given below.

(c) 1 and 3

(b) 3 and 5

(d) 1 and 4

(a) 2 and 5

Ans. b

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61. The Keynesian theory of money demand predicts that people will increase their money holdings if the believe that

(a) interest rates are about to fall

(b) bond prices are about to rise

(C) bond prices are about to fall

(d) expected inflation is about to fall

Ans. c

62. A group of modern economists who believe that markets clear very rapidly and that expanding the money supply will always increase prices rather than employment belong to the

(a) new classical school

(b) Keynesian school

(c) post Keynesians school

(d) monetarists school

Ans. a

63. The value of deposit multiplier is the reciprocal of

(a) excess reserves

(c) cash reserve ratio

(b) reserve money

(d) None of the above

Ans. c

64. Friedman, in his quantity theory has treated money as

(a) consumption expenditure

(b) wealth

(c) investment

(d) net exports

Ans. b

65. According to Friedman, the rate of return on other forms of assets like bonds, equities, securities is

(a) greater than one

(c) equal to one

(b) less than one

(d) zero

Ans. a

66. Velocity of money will be unpredictable if

(a) money demand changes with permanent income

(b) money demand is independent of long-term interest rates

(C) money demand is independent of short-term interest rates

(d) money demand is unstable

Ans. c

67. In Friedmen’s modern quantity theory the implied formula for velocity is

(a) V – F(Y, )/Y

(c) V= V/Y)

(b) V= Y/ (Yp)

(d) V- M / ti

Ans. b

68. The demand curve for money is downward sloping because

(a) at lower interests rates, people want to hold more money and fewer bonds

(b) at higher interest rates, people want to hold more money and fewer bonds

(c) at lower interest rates, bonds are more attractive

(d) at higher interest rates, holding money is desirable

Ans. b

69. The quantity theory of money implies that a given percentage change in the money supply will cause

(a) a larger percentage change in nominal GDP

(b) an equal percentage change in nominal GDP

(C) a smaller percentage change in nominal GDP

(d) an equal percentage change in real GDP

Ans. b

70. The more sensitive money demand is to interest rates, the

(a) more likely velocity will fall

(b) more velocity will fluctuate

(c) more likely velocity will size

(d) more likely velocity will be constant

Ans. b

71. New classical theories were an attempt to explain

(a) why policy changes that are perceived as permanent have more of an impact on a person’s behaviour than policy changes that are viewed as temporary

(b) the increase in the growth rate of real output in the 1950s

(c) the stagflation of the 1970s

(d) how unemployment could have persisted for so long during the great depression

Ans. a

72. Suppose the money supply and the price level are constant and the demand for money is a function of income and interest rate. When the income level increases, there is

(a) an increase in the quantity of money demanded and an increase in the rate of interest

(b) an increase in the quantity of money demanded and a decrease in the rate of interest

(c) a decrease in the quantity of money demanded and a decrease in the rate of interest

(d) a decrease in the quantity of money demanded and an increase in the rate of interest

Ans. a

73. A difference between Keynes and Friedmans money demand relationship is

(a) Friedman money demand depends on permanent income but income has little effect with Keynesian money demand

(b) Keynesian money demand depends on interest rates. but interest rates have little effect with Friedmans money demand

Ans. b

78. Consider the following statements.

1. Open market operation is an activity by a Central Bank to buy or sell commercial papers in the open market.

2. Aim of open market operations is to control the short-term interest rate and the supply of base money in an economy.

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. c

79. Consider the following functions of the LAF in Indian Monetary Policy.

1. It influences the volume of liquidity in the money market.

2. It stabilises the short-term rate of interest or the call rates.

Which of the functions given above is/are the main functions of the LAF?

(a) Only 1

(b) Only 2

(c) Both 1 and 2

(d) Neither 1 nor 2

Ans. c

80. When the Reserve Bank of India announces an increase in the Cash Reserve Ratio (CRR), what does it means?

(a) The commercial banks, will have less money to lend

(b) The Reserve Bank of India will have less money to lend

(c) The Union Government will have less money to lend

(d) None of the above

Ans. a

81. Which one of the following is the basic objective of monetary policy?

(a) To control deficit of the budget

(b) To control deficit in the balance of payments

(c) To control cost and availability of money

(d) To control public expenditure

Ans. c

82. Which of the following measures would result in an increase in the money supply in the economy?

1. Purchase of government securities from the public by the Central Bank.

2. Deposit of currency in commercial banks by the public.

3. Borrowing by the government from the Central Bank.

4. Sale of government securities to the public by the Central Bank.

Select the correct answer using the codes given below.

(a) 2 and 4

(c) 2, 3 and 4

(b) 1 and 3

(d) Only 1

Ans. b

83. Consider the following statements about the reserve requirements.

1. Reserve requirement can be used as an instrument of monetary policy.

2. Required reserve ratio is used as a tool to influence the country’s borrowings and interest rates.

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. c

84. Consider the following statements.

1. The repo rate is the rate at which other banks borrow from the RBI.

2. A value of I for Gini co-efficient in a country implies that there is perfectly equal income for everyone in its population.

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither t nor 2

Ans. a

85. Consider the following statements.

1. Liquidity adjustment facility operations help the RBI to effectively transmit interest rate signals to the market.

2. Under the repo or repurchase option, banks borrow money from the RBI via the sale of securities with an agreement to purchase the securities back at a fixed rate at a future date.

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. c

86. If the RBI decides to adopt an ‘expansionist’ monetary policy, which of the following it would not do?

1. Cut CRR and optimise SLR.

2. Increase Marginal Standing Facility Rate (MSFR),

3. Cut bank rate and increase reverse repo rate.

Select the correct answer using the codes given below,

(c) 2 and 3

(a) 1 and 2

(b) Only 1

(d) Only 2

Ans. d

87. Which of the following is not related to the selective controls of the Central Bank?

(a) Margin reguirement on security purchases

(b) Maximum period of repaying consumer loans

(c) Minimum down payments on particular type of loan

(d) Maximum down payments on consumer loans

Ans. d

88. Consider the following statements.

1. Buying and selling of the eligible securities by Reserve Bank of India is an important feature of the open market operation.

2. Open market operation influences the volume of loans and advances made by the commercial banks in India,

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. c

89. Assertion (A) The role of monetary policy in a developing economy in general is to achieve growth with stability.

Reason (R) It makes availability of credit to public at cheaper rate of interest.

Codes (a) A is true, but R is not the correct explanation of A

(b) Both A and R are false

(c) A is false, but R is true

(d) Both A and Rare true

Ans. a

90. Consider the following roles.

1. Bank of isue

2. Controller of credit

3. Supervision to bring sound banking

4. Banker to government Which of the roles given above is/are the functions or roles of the Reserve Bank of India?

(a) 1 and 2

(c) 1, 2 and 4

(b) 1 and 3

(d) All of these

Ans. d

91. Consider the following statements.

1. Bank rate is the rate at which RBI lends to the commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements.

2. Bank rate imposed by the RBI is stable and not changes with the market conditions.

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. a

92. Consider the following statements with regard to SLR.

1. To meet SLR, commercial banks can use cash only.

2. SLR is maintained by the banks with themselves.

3. SLR restricts the banks leverage in pumping more money into the economy.

Which of the statements given above is/are correct?

(b) 1 and 3

(a) 1 and 2

(c) 2 and 3

(d) Only 2

Ans. c

93. Banks of India are required to maintain a certain ratio between their risky assets and capital which is known as

(a) Capital Adequacy Ratio (CAR)

(b) Statutory Liquidity Ratio (SLR)

(c) General Bank Reserve (GBR)

(d) Capital-to-Risk Weighted Adequacy Ratio (CRAR)

Ans. d

94. Consider the following objectives.

1. To restrict the expansion of bank credit.

2. To augment the investment of the banks in government securities.

3. To ensure solvency of banks.

Which of the objectives given above are the main objectives of the Statutory Liquidity Requirements (SLRS)?

(a) 1 and 2

(c) 2 and 3

(b) I and 3

(d) All of the above

Ans. d

95. Final decision of printing currency in India rests with the

(a) RBI

(b) Ministry of Finance

(c) Cabinet committee on economic affairs

(d) Both ‘a’ and ‘b’

Ans. a

96. Consider the following statements.

1. In India, the cash reserve requirement is between 3% to 15% of the total demand and time deposits of the commercial banks.

2. In India, the statutory liquidity requirement is not less than 25% of the total demand and time deposits of the commercial banks,

Which of the statements given above is/are correct about the general credit control measures used by the RBI?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. c

97. Open market operations, one of the measures taken by RBI inorder to control credit expansion in the economy, means

(a) sale or purchase of government securities

(b) issuance of different types of bonds

(c) auction of gold

(d) to make available direct finance to borrowers

Ans. a

98. Which one of the following committees was constituted to bring reform in the Indian banking system?

(a) Abhijit Sen Committee

(b) Abid Hussain Committee

(c) Suresh Tendulkar Committee

(d) M Narsimham Committee

Ans. d

99. Consider the following kinds of credit controls.

1. Minimum margins for lending against specific securities.

2. Ceiling on the amounts of credit for certain purposes.

3. Discriminatory rate of interest charged on certain types of advances.

Which of the credit controls given above are used by RBI a selective credit control measures?

(a) 1 and 2

(c) 2 and 3

(b) 1 and 3

(d) All of these

Ans. d

100. What is repo rate?

(a) It is the rate at which RBI sells government securities to banks

(b) It is the rate at which RBI buys government securities from banks

(c) It is the rate at which RBI allows small loan in the market

(d) None of the above

Ans. b

101. Consider the following statements with reference t India’s commercial banks.

1. The base rate system for the interest of the commercial banks was introduced in 2010.

2. The base rate system has enabled a more informed assessment of the transmission of monetary policy impulses to bank’s lending rates.

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. c

102. Consider the following about repo options.

1. Term repo option refers to a repo with a specified end date in the money market.

2. Over night repo option has a 1 day maturity transaction period in the money market.

3. Open repo option has no end date.

Which of the statements given above is/are correct?

(a) Only 1

(c) 2 and 3

(b) 1 and 3

(d) All of these

Ans. d

103. Consider the following statements.

1. The printing of notes is the monopoly of Reserve Bank of India.

2. The volume of rupee coins and smaller coins are controlled by the Ministry of Finance.

Which of the statements given above is/are correct?

(a) Only 1

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. a

104. With the aim of containing inflation and anchoring inflationary expectations in recent time, Reserve Bank of India actively managed liquidity through the appropriate use of which one of the following?

(a) Liquidity adjustment facility

(b) Interest subvention

(c) Open market operations

(d) Both ‘a’ and ‘c’

Ans. d

105. Consider the following statements.

1. Repo bills are typically short-term bills.

2. Repo bills can have a maturity period of as long as 2 years.

Which of the statements given above is/are correct?

(a) Only

(c) Both 1 and 2

(b) Only 2

(d) Neither 1 nor 2

Ans. c

106. Which of the following terms indicate a mechanism used by commercial banks for providing credit to the government?

(a) Cash credit ratio

(b) Debit service obligation

(c) Liquidity adjustment facility

(d) Statutory liquidity ratio

Ans. d

107. Prime Lending Rate (PLR) in the rate at which 1 and lower denomination in India?

(a) RBI lends money to other banks

(b) Banks lend money to other banks

(c) Banks lend money to RBI

(d) Banks lend money to their important clients

Ans. d

108. Which one of the following issues the currency notes and coins of ?

(a) SBI

(b) RBI

(c) Government of India

(d) Ministry of Finance

Ans. d

109. A banking system can engage in multiple expansion of deposits, if all the banks in the system maintains

(a) identical reserve ratio

(c) reserve ratio = 1

(b) reserve ratio<1

(d) reserve ratio>1

Ans. b

110. The value of deposit multiplier is the reciprocal of

(a) excess reserves

(c) cash reserve ratio

(b) reserve money

(d) None of these

Ans. c

111. Which of the following is a component of high powered money?

(a) The sum of currency in circulation, bank reserves and checkable deposits

(b) Currency in circulation plus bank reserves

(C) Bonds held by banks, loans and bank reserves

(d) Currency in circulation plus checkable deposits

Ans. b

112. If required reserved ratio is 100%, then multiple expansion of bank deposits would be

(a) 200%

(c) 500%

(b) zero

(d) 50%

113. Which of the following is not the player in the money supply process?

(a) Central Bank

(b) Depository Institution

(e) Borrowers

(d) Congressional Banking Committee

Ans. b

114. Suppose Y is real GDP, Y, is nominal GDP and M is money supply, H is the high powered money, which of the following ratios represents the velocity of money?

(a) M: Y

(b) M: H

(c) Y:M

(d) Y: H

Ans. d

115. Which of the following events will most likely cause an increase in money supply?

(a) An increase in the ratio of reserves to deposits

(b) A Central Bank purchase of bonds

(c) Both ‘a’ and ‘b’

(d) None of the above

Ans. b

116. If cash reserves with the bank is 2,000, its creating credit worth is 20,000 in form of demand deposit, which is credit multiplier?

(a) 20

(b) 2

(c) 10

(d) 4

Ans. c

117. The ratio of change in money supply to change in high powered money is called

(a) money multiplier

(b) balanced budget multiplier

(c) credit multiplier.

(d) foreign trade multiplier

Ans. a

118. If the reserve deposit ratio is 10% and currency equals 7 5,000. All held in reserves. How much is the money supply?

(a) ? 500

(b) 1,000

(c) 2,500

(d) 7 50,000

Ans. d

119. The coins and the notes that are in the bank vaults are counted as

(a) currency outstanding but are subtracted from money supply

(b) currency outstanding and are therefore part of money supply

(c) bank reserves and are therefore part of money supply

(d) reserves and are therefore part of the monetary base

Ans. d

120. Term deposits can be drawn

(a) when needed

(c) not when needed

(b) by cheques

(d) None of these

Ans. c

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