Q1. Which of the following is not a function of money?
A. Unit of account
B. Standard of deferred payment
C. Transfer of value
D. Price stability
Ans. D

Q2. Money supply in a country is regulated by ?
A. Government
B. Commercial banks
C. Planning Commission
Ans. D

Q3. Money supply includes –
A. Only demand deposits with banks
B. Only time deposits with banks
C. All deposits with banks
D. Both A & B
Ans. A

Q4. Which of the following is not a problem of barter system of
A. Store of value
B. Unit of account
C. Unemployment
D. Double coincidence of wants
Ans. C

Q5. Credit creation by commercial banks is determined by :
B. Primary deposits
D. All of these
Ans. D

Q6. Ratio of total deposits that a commercial bank has to keep with RBI
is called –
C. Deposits ratio
D. Cash Reserve ratio
Ans. D

Q7. The central bank can decrease credit availability by
A. Selling government securities
B. Decreasing repo rate
C. Decreasing reverse repo rate
D. Decreasing CRR
Ans. A

Q8. Demand deposits include
A. Fixed deposits & Saving accounts deposits
B. Current account deposits & fixed deposits
C. All the deposits with banks
D. Saving account deposits & Current account deposits
Ans. D

Q9. Money supply is a – concept
Ans. Stock

Q10. LRR is the sum of
A. Repo rate & Reverse repo rate
B. Bank rate & CRR
D. Margin requirement & Demand deposits
Ans. C

Q11. State two components of M1 measure
Ans. Currency held by public in the form of notes & coins, Other
deposits , Demand deposits

Q12. Give the meaning of money supply
Ans. It refers to the total stock of money held by people of a country at
a particular point of time.

Q13. What do you mean by barter system?
Ans. It is a system of exchange where goods are exchanged for goods

Q14. Give the definition of money?
Ans. Money is a thing which is commonly accepted as a medium of
exchange . It is acceptable to both buyers & sellers

Q15. To encourage investment in the country Central Bank – CRR
Ans. Reduce

Q16. Define money multiplier
Ans. It refers to the fraction by which money get multiplied in the
process of credit creation by the commercial banks
What do you mean by credit creation in an economy?
Ans. It refers to the process of money creation in an economy which is
inversely related to LRR & directly related to primary deposits

Q17. State the role played by the central bank as the lender of last
Ans. It is a function of central bank in which when commercial banks
fail to get credit from other sources , central bank approves it a loan by
discounting its securities

Q18. Define demand deposits
Ans. It refers to the savings & current account deposits with banks
which they are liable to pay on demand. Also known as chequeable
Define time deposits
Ans. Time deposits are the fixed deposits having a fixed maturity period,
these are not payable on demand & cheques can’t be issued against

Q19. What is reverse repo rate?
Ans. It is the rate of interest which commercial banks get on their
surplus deposit with RBI. The rate at which central bank borrows from
commercial banks.
Define Cash Reserve Ratio
Ans. The percentage of deposits which a commercial bank needs to
keep as reserve with the central bank is known as CRR

Q20. What is a central bank?
Ans. It is a apex banking institution which controls the banking system
& money supply of a country .
Define commercial banks.
Ans. Commercial banks are profit making financial institutions which
accepts deposits & grants loan to people as per their eligibility

Q21. Define SLR
Ans. It is the percentage of public deposit kept by commercial bank
with itself in the form of liquid assets.
What is bank rate?
Ans. The rate at which commercial banks can borrow funds from
central bank without any security on their instant requirement

Q22. If LRR is 20 % and primary deposit is Rs.1,00,000 find the credit
created in the economy
Ans. Credit creation = Primary deposit X
= 1,00,000 X 1/20%
= 1,00,000 X 5
= Rs.5,00,000

Q23. Value of Money Multiplier
………………(increases/decreases/remains unchanged) with an increase
in Cash Reserve Ratio
Ans. decreases

Q24. Name any two quantitative tools to control credit creation in an
Ans. Repo rate, Bank rate, CRR, SLR
Name any two qualitative tools to control credit creation in an
Ans. Margin requirement, Credit rationing, Moral Suasion

Q25. What is credit money?
Ans. It refers to that money in which the money value is more than the
commodity value as & when they are issued
The effective instruments to control credit are –
Ans. Quantitative instruments

Q26.What are open market operations ? How are they useful in credit
Ans. Refers to sale or purchase of government securities by central
bank in the open market, Securities are purchased to increase money
supply and sold to decrease money supply.

Q27. Define high powered money
Ans. Currency issued by central bank that is held by public or
commercial banks & act as basis for credit creation is known as high
powered money.
What is ‘spread’ in economics?
Ans. Spread is the difference between interest rate paid by banks &
interest rate received by borrower, in other words it is the profit
appropriated by bank.

Q28. Money supply do not include –
A. Stock of money held by people
B. Stock of money held by govt.
C. Stock of money held by banking system
D. Both B & C
Ans. D

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