Money and Banking (c) Currency held by the public and demand

Objective Questions deposits with commercial banks

1. A farmer exchanges wheat for cloth. This (d) Currency held in the government account
system of exchange is referred to as ______. 10. _______ is the agent and adviser to the
(a) Barter (b) Monetary Exchange government of India.
(c) Self-consumption (d) None of these (a) RBI (b) Commercial Banks
2. ‘A’ has a good that ‘B’ wants and ‘B’ has a (c) Ministry of finance (d) none of the above
good that ‘A’ has wants. This is referred to as 11. The main aim of monetary policy is
____ under barter system of exchange. ________
(a) Unit of account (b) Store for value (a) to bring price stability in the economy
(c) Double coincidence of want (b) employment generation in the country
(d) None of the above (c) to increase trade surplus
3. _______ money refers to the money backed (d) to generate greater tax revenue.
by the authority of the government. 12. ‘All financial institutions are banking
(a) Legal (b) Fiat institutions’
(c) Authorised (d) All of these (a) True (b) False
4. Cheques are examples of _______ (c) Partially true (d) Incomplete statement
(a) Fiduciary (b) Legal 13. Write the correct pair.
(c) Fiat (d) None of these Column 1 Column 2
5. Money is used as a standard for deferred A. C+ DD+ OD+ Net Time (i) M1 measure of
payments. Deposits with Commercial money supply
(a) True (b) False Banks
(c) Partially true (d) Incomplete statement B. C+ DD+ OD+ Deposits (ii) M2 measure of
6. In credit money, the money value is led than With Post Office Saving money supply
the commodity value. Bank
(a) True (b) False C. C+ DD+ OD+ Total (iii) M 3 measure of
(c) Partially true (d) Incomplete statement Deposits of Post Office money supply
7. Loans offered by commercial banks ______ Saving Bank
the money supply in the economy. D. C+ DD+ OD (iv) M 4 measure of
(a) Increase (b) Decrease money supply
(c) Unchanged (d) None of these (a) A- (i) (b) B- (ii)
8. In the present COVID-19 times, many (c) C- (iii) (d) D- (iv)
economists have raised their concerns that 14. Match the correct pair from given below.
Indian economy may have to face a deflationary
Column 1 Column 2
situation, due to reduced economic activities in
A. Limited Legal Tender (i) RBI
the country. Suppose you are a member of the
B. Unlimited Legal Tender (ii) Coins
high-powered committee constituted by the
C. Banker to the Public (iii) Currency notes
Reserve Bank of India (RBI).
D. Banker to the (iv) Commercial
You have suggested that as the supervisor of
Government Banks
commercial banks, ______ of the money supply
be ensured, by the Reserve Bank of India (RBI). Choose from the options given below.
(a) Restriction (b) Release A B C D A B C D
(c) Either (a) or (b) (d) None of the above (a) (i) (iii) (ii) (iv) (b) (ii) (i) (iv) (iii)
9. Supply of money refers to _________ (c) (ii) (iii) (iv) (i) (d) (ii) (iv) (i) (iii)
(a) Currency held by the public 15. Choose the incorrect pair from the given
(b) Currency held by Reserve Bank of India (RBI) below.
Column 1 Column 2 24. Which of following measures of money
A. Currency Authority (i) RBI supply is considered as monetary base?
B. Creator of Money (ii) Commercial (a) M1 (b) M2 (c) M3 (d) M4
Banks 25. Which of the following is/are not an
assumption(s) of credit creation process?
C. Issuer of Limited (iii) Central
(i) Entire banking system is taken as a single unit
Legal Tender Government
(ii) All transactions are done through banks
Choose from the option below.
(iii) There is no saving in the economy.
(a) A-(i) (b) B-(ii)
(a) Only (i) (b) Only (ii)
(c) C-(iii) (d) All of the above
(c) Only (iii) (d) Both (i) and (ii)
16. Value of Money Multiplier ______ with an
26. Dear money policy of central bank, which is
increase in Cash Reserve Ratio.
used to keep the growth steady and in-line with
(a) Increase (b) Decrease
other economic factors, refers to
(c) Remain Unchanged (d) None of these
(a) Tighten the money supply in the economy
17. Choose the incorrect pair from given below.
(b) Ease the money supply in the economy
Column1 Column 2
(c) Allow commercial banks to work under less
A. M1 (i) Narrow Money strict environment
B. M2 (ii) Monetary Base (d) Both (b) and (c)
C. M3 (iii) Broad Money 27. Identify the correct sequence of alternatives
Choose from the option below. given in Column 2 by matching them with
(a) A-(i) (b) B-(ii) respective terms in Column 1.
(c) C-(iii) (d) All of the above Column 1 Column 2
18. M1 = Currency will Public + _____+ other
A. Accept deposits (i) Central Bank
deposits with RBI
B. Lender of last resort (ii) Qualitative
(a) Time deposits with post offices
Instrument
(b) Demand Deposits with commercial banks
(c) Time deposits with commercial banks C. Margin requirements (iii) Quantitative
(d) Demand deposits with post offices Instrument
19. Which of the following is not a part of M 1? D. Statutory Liquidity Ratio (iv) Commercial
(a) Time deposit (b) Demand deposit (SLR) bank
(c) Both (a) and (b) (d) Neither (a) nor (b) Codes
20. Money multiplier is equal to A B C D A B C D
(a) 1/CRR (b) 1/SLR (a) (i) (ii) (iii) (iv) (b) (ii) (iii) (iv) (i)
(c) 1/LRR (d) None of these (c) (iii) (iv) (i) (ii) (d) (iv) (i) (ii) (iii)
21. If LRR is equal to 25%, what will be the value 28. Identify the incorrect statement from given
of credit multiplier? below.
(a) 4 (b) 5 (a) Present currency can work as money as it is
(c) 6 a legal tender.
(d) can’t be determined (b) Coins held by the public are limited legal
22. At a given point in time, money multiplier is tender
equal to 10. What will be the value of legal (c) Central bank prints currency in India.
reserve ratio? (d) Central bank do not deal with general public.
(a)10% (b) 15% (c) 20% (d) 25% 29. Credit creation depends on ______
23. What will be the total amount of money (a) Initial level of deposit
created in the system if legal reserves ratio is (b) Money multiplier
20% and primary deposits are ₹1,000? (c) Both (a) and (b)
(a) ₹1,000 (b) ₹2,000 (c) ₹3,000 (d) ₹4,000 (d) None of the above
30. Choose the correct statement from given (c) Flat money (d) Both (a) and (c)
below. 40. What is meant by cash reserve ratio?
(a) Commercial banks create credit out of (a) Fraction of total deposits kept with banks
primary deposits (b) Fraction of time deposits kept with banks
(b) Money multiplier is directly related to legal (c) Fraction of demand deposits kept with banks
reserve ratio. (d) None of the above
(c) Central bank of the country is not authorized 41. Credit cards are issued by _______
to maintain foreign exchange reserve. (a) Commercial banks (b) Central Bank
(d) All of the above (c) General Government (d) Both (a) and (b)
31. Gross demand deposits include inter-bank 42. Non-Chequable deposits are those
claims whereas net demand deposits do not (a) Against which no money can be withdrawn
include inter-bank claims. (b) Against which money can be withdrawn but
(a) True (b) False cheque
(c) Partially true (d) Incomplete statement (c) They have a fixed maturity
32. Which of the following systems is followed (d) Both (a) and (c)
by Reserve Bank of India for issuing currency? 43. Which of the following is/are the important
(a) Minimum Reserve system component(s) of credit creation process?
(b) Proportionate system (a) Legal reserves (b) Bank rate
(c) Fixed Fiduciary issue system (c) Primary deposits (d) Both (a) and (c)
(d) Simple deposit system 44. Which of the following is the short-term
33. Central bank of deposit does not deal with. borrowing rate of commercial bank?
(a) State government (b) General public (a) Bank rate (b) Repo rate
(c) Central Government (d) Commercial banks (c) Reserve ratio (d) Both (a) and (b)
34. India legal reserve ratio is set by the 45. If total amount of money created in the
commercial banks. system is ₹ 10,000 with legal reserve ratio being
(a) True (b) False 25%. How much will be the primary deposits?
(c) Partially true (d) Can’t say (a) ₹1,500 (b) ₹2,000 (c) ₹2,500 (d) ₹4,000
35. Who regulates money supply? 46. The rate at which commercial banks park
(a) Government of India their excess reserves is known as
(b) Reserve bank of India (a) Repo rate (b) Bank rate
(c) Commercial Bank (c) Open market rate (d) Reverse repo
(d) Planning commission Rate
36. Central Bank prints currency in the country. 47. The volume and direction of money supply
(a) True (b) False in the economy is controlled by ____
(c) Partially true (d) Can’t say (a) Commercial banks (b) Central Bank
37. The central bank is the sole supplier of (c) Central Government (d) Both (a) and (c)
money in an economy Assertion-Reasoning MCQs
(a) True (b) False 48. Assertion (A) currency held by public is a
(c) Partially true (d) Can’t say monetary liability of central bank.
38. Which of the following reserves is kept with Reasoning (R) Central bank controls credit,
the commercial banks? whereas commercial banks create credit with
(a) Cash reserve ratio the currency held by public.
(b) Statutory liquidity ratio Alternatives
(c) Both (a) and (b) (a) Both Assertion (A) and Reason (R) are true
(d)Neither (a) nor (b) and Reason (R) is the correct explanation of
39. _____ refers to money backed by the order Assertion (A)
or authority of the government.
(a) Legal tender money (b) Fiduciary money
(b) Both Assertion (A) and Reason (R) are true, Reason (R) People exchange old clothes for
but Reason (R) is not the correct explanation of utensils.
Assertion (A) Alternatives
(c) Assertion (A) is true, but Reason (R) is false (a) Both Assertion (A) and Reason (R) are true
(d) Assertion (A) is false, but Reason (R) is true and Reason (R) is the correct explanation of
49. Assertion (A) The currency notes do not Assertion (A)
carry as much value in it as is denominated, still (b) Both Assertion (A) and Reason (R) are true,
has general acceptance. but Reason (R) is not the correct explanation of
Reason (R) Currency notes are backed by a legal Assertion (A)
promise from the central bank and central (c) Assertion (A) is true, but Reason (R) is false
government of the country. (d) Assertion (A) is false, but Reason (R) is true
Alternatives Case Based MCQs
(a) Both Assertion (A) and Reason (R) are true Direction Read the following case study and
and Reason (R) is the correct explanation of answers the question 53 to 57.
Assertion (A) In November 2016, the Government of India
(b) Both Assertion (A) and Reason (R) are true, declared that old currency notes of ₹500 and
but Reason (R) is not the correct explanation of ₹1,000 were no legal tender. New currency
Assertion (A) notes of ₹ 500 and ₹2,000 were launched.
(c) Assertion (A) is true, but Reason (R) is false The public were advised to deposit old currency
(d) Assertion (A) is false, but Reason (R) is true notes in their bank accounts till 31st December,
50. Assertion (A) Central bank as a banker to 2016 without any declaration and upto 31 st
the government, works as a financial adviser. March, 2017 with the RBI with declaration. The
Reason (R) Government borrows internally government also allowed exchange of ₹4,000
from banks and general public. old currency by new currency per person per
Alternatives day. Also, upto 12th December, 2016, old
(a) Both Assertion (A) and Reason (R) are true currency was acceptable at petrol pumps,
and Reason (R) is the correct explanation of government hospitals and to pay government
Assertion (A) dues.
(b) Both Assertion (A) and Reason (R) are true, 53. Which of the following is/are true about
but Reason (R) is not the correct explanation of money?
Assertion (A) (a) It is a legal tender
(c) Assertion (A) is true, but Reason (R) is false (b) It is a medium of exchange
(d) Assertion (A) is false, but Reason (R) is true (c) Both (a) and (b)
51. Assertion (A) Paper money is becoming (d) Neither (a) nor (b)
more popular these days. 54. Government removed the legal tender
Reason (R) It is generally acceptable and status of ₹500 and ₹1,000 currency notes
convenient to carry. during the demonetisation. These currency
Alternatives notes are also known as _______
(a) Both Assertion (A) and Reason (R) are true (a) Limited legal tender
and Reason (R) is the correct explanation of (b) Unlimited legal tender
Assertion (A) (c) Commodity Money
(b) Both Assertion (A) and Reason (R) are true, (d) None of these
but Reason (R) is not the correct explanation of 55. Assertion (A) Demonetisation removes the
Assertion (A) legal tender status of currency making it
(c) Assertion (A) is true, but Reason (R) is false unacceptable mode of payment.
(d) Assertion (A) is false, but Reason (R) is true Reason (R) The intrinsic value of currency notes
52. Assertion (A) We can still encounter barter is very less than the actual demonetised value.
system in modern economic system Alternatives
(a) Assertion (A) is true and Reason (R) is correct
reason of Assertion (A)
(b) Assertion (A) is true and Reason (R) is not a
correct reason of Assertion (A)
(c) Assertion (A) is false, but Reason (R) is true
(d) Both are false
56. With the help of which of the following
authorities, demonetisation was implemented?
(a) Commercial banks
(b) State government
(c) Central bank
(d) All of these
57. Which of the following notes are not in
circulation post demonetisation?
(a) ₹500 (b) ₹1,000
(c) ₹2,000 (d) None of these
Direction Read the following case study article
and answers the questions 58 to 62.