1. _________________ is the main source of money supply in an economy.
A. Central Bank
B. Commercial Banks
C. Both (A) and (B)
D. Government
ANSWER: C.Both (A) and (B)
SOLUTION :The sources of money supply involve both the central bank (typically the Reserve Bank of India, RBI, in India) and commercial banks. The key sources include: Central Bank (RBI) Actions: The RBI has the authority to issue currency notes and coins, contributing to the physical component of money supply (M0).
2. Money supply is a _________ concept.
A. Stock
B. Flow
C. Both (a) and (b)
D. Neither (a) nor (b)
ANSWER:A.Stock
SOLUTION:
Money supply is measured as per the stock of money that is in circulation among the public at a particular point of time. Hence, money supply is a ‘stock concept’.
3. There is ______ relationship between reserve ratio and money creation.
A. Direct
B. Inverse
C. Can’t say
D. None
ANSWER : B.Inverse
SOLUTION:
There is an inverse relationship between legal reserve ratio (LRR) and value of money multiplier.
4. Who regulates money supply?
A. Government of India
B. Reserve Bank of India
C. Commercial Banks
D. Planning Commission
ANSWER: B.Reserve Bank of India
SOLUTION:
The Reserve Bank of India (RBI) controls the money supply in India. The RBI has control over the monetary policy of India. It controls the interest rates, the reserves to be maintained with the banks to control the money circulation in the economy.
5. This bank operates in public interest without any profit motive_______.
A. Reserve Bank of India
B. State Bank of India
C. Canara Bank
D. Allahabad Bank
ANSWER: A.Reserve Bank of India
SOLUTION:
Reserve bank of India looks after the monetary system of the country. It is a banker to the banks and the govt of the country, it does not exist for making profits. Its main objective is to make public welfare and economic development.
6. Which of the following is a step that the central bank will take to encourage greater investment in the economy?
A. It will look to increase the cash reserve ratio
B. It will look to reduce the cash reserve ratio
C. It will look to increase the bank rate
D. It will look to sell the government securities in the open market
ANSWER:B.It will look to reduce the cash reserve ratio
SOLUTION:
It will look to reduce the cash reserve ratio.
7. Which of the following is a step that the central bank will take to increase the overall availability of credit?
A. It will sell the government securities in the market
B. It will buy more government securities from the market
C. It will raise the reverse repo rate
D. It will raise the repo rate
ANSWER:A.It will sell the government securities in the market
SOLUTION :
It will sell the government securities in the market
8. Which of the following statements is true about the Indian monetary system?
A. The Indian monetary system is based on the gold standard
B. The Indian monetary system is based on the credit money standard
C. The Indian monetary system is based on the paper standard
D. The Indian monetary system is based on the metallic standard
ANSWER:C.The Indian monetary system is based on the paper standard
SOLUTION:
The Indian monetary system is based on the paper standard.
9. Which of the following statements is true about the central bank?
A. It regulates the entire banking system in the country
B. It is under the ownership of the central government of a country
C. It is the apex bank of a country
D. All of the above
ANSWER: D.All of the above
SOLUTION:
All of the above
10. Which of the following statements is true about the money supply?
A. It is the total volume of money that is held by the government of a country
B. It is the total volume of money that is held by the general public of a country over a time period
C. It is the total volume of money that is held by the general public of a country at a particular point in time
D. All of the above
ANSWER: C.It is the total volume of money that is held by the general public of a country at a particular point in time
SOLUTION:
It is the total volume of money that is held by the general public of a country at a particular point in time