Assertion Reason MCQs of Money and Banking Chapter Class 12

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Looking for the Assertion Reason-based MCQs (Multiple Choice Question) of Money and Banking Chapter of Macroeconomics Class 12.

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Assertion Reason Multiple Choice Question of Money and Banking of Macroeconomics Class 12

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives are given below:

Assertion (A): Money supply includes the least liquid measure of the Money supply.

Reason (R): Money supply includes the currency with public outside banks and demand deposits with banks.

Alternatives:-

a) Bothe Assertions (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A)

b) Bothe Assertion (A) and Reason (R) ar True and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d)
Explanation:- Assertion is false, Money supply includes a most liquid measure of Money supply that can readily be used in settlement of economic transactions such as currency held by the public outside bank and demand deposits with bank. Such money can be used any time to settle any economic transactions such as purchase of goods ans services, loan repayment etc.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives are given below:

Assertion (A): Currency created by the Central Bank is called bank money.

Reason (R): Central Bank of a country has a monopoly over the currency issue. It has the sole responsibility of printing and putting in circulation all types of currency notes (with a few exceptions)

Alternatives:-

a) Both Assertions (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) ar True and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d)

Ans – d)
Explanation:- Currency created by the central bank is the fiat money and a legal tender. It is not the bank money. Bank money is created by the commercial bank not the central bank. Thus Assertion is false. Central Bank has the sole rights to issue the all kinds of currency printed by central bank itself and central government. Central Bank has the right to print the paper notes. But all coins are minted (printed) by central bank, but after printing handed over to central bank for issue and circulation purposes in whole country. Thus reason are is true

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives are given below:

Assertion (A): Currency notes and coins are called fiat money.

Reason (R): RBI is responsible for giving the bearer of the currency equal purchasing power.

Alternatives:-

a) Both Assertions (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)

Ans – a)
Explanation:- All currency and notes issued by the RBI are fiat money. Fiat money is the legal tender and thus has to be accepted to each and every citizen of the country in settlement of economic transactions. Such power is given by the central bank and RBI itself is responsible for giving bearer (money holder) the rights of the currency equal power. Thus Assertion and Reason both are correct and Reason is the correct explanation of the Assertion.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives are given below:

Assertion (A): Demand Deposits are not legal tenders.

Reason (R): They are with the bank, so only can be used as a legal tender when cheques are issued for the transfer.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – c)
Explanation:- Demand Deposits are not legal tender. It is the bank money issued by the bank, not by the government. Legal tender is the money that is authorized and issued by the order of the government. Thus Demand deposits in no way can be used as legal tender. Accepter can refuse to accept it.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives are given below:

Assertion (A): An increase in Legal Reserve Deposit Ratio increases the credit creation power of the commercial banks (banking system).

Reason (R): credit creation = Primary deposits × 1/Legal Reserve Ratio.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d)
Explanation:- When LRR increases, credit creation reduces as credit creation is inversely related to LRR. Thus Assertio is false. Reason is true, this is the correct formula of credit creation.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct
alternatives are given below:

Assertion (A): Currency notes and coins are called legal tenders.

Reason (R): They can not be refused by any citizen of the country for settlement of any kind of transaction.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Yes, Notes and coins issued by the RBI are legal tender and has to be acceted by all citizen in settlement of all kinds of economic transactions.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Money supply is a stock concept.

Reason (R): Money supply is measured over a period of time.

Alternatives:-

a) Both Assertions (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) ar True and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – c)
Explanation:- Money supply is a stock concept. It’s true. But Reason is false as it says Money supply is measured over a period of time. The money supply is measured at a point of time.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (R): Money supply is a flow variable.

Reason (R): Money supply is the total stock of money in circulation among the public at a particular point of time.

Alternatives:-

a) Both Assertions (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) ar True and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d)
Explanation:- Money is not the flow concept. It is the stock concept as it is measured and a particular point of time.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Currency held with the government and banks is not included in the Money Supply.

Reason (R): Currency can be legally used to make payment of debts or other obligations.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – b)
Explanation:- Money supply does not include currency held by the bank and the government as per class 12 syllabus. Thus Assertion is true. Reason statement is also true as currency can be used legally to settle the debt. But Reason statement is not the correct explanation of Assertion statement as it does not explain why currency held by the bank and government are not included in money supply.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Statutory liquidity ratio is the ratio of demand deposits of a commercial bank which, it has to keep with itself in the form of specified liquid assets.

Reason (R): Statutory liquidity ratio is a component of legal reserve ratio, which affects the credit creation in the economy.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – b)
Explanation:- SLR is the part of LRR. SLR is the part of demand deposits that commercial has to keep with itself. Both Assertion and Reason are correct. but reason does not explain why commercial bank keep SLR with itself.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Net Demand Deposits (and not Gross Demand Deposits) of Commercial Banks are included in Money Supply.

Reason (R): Inter-Bank Deposits are the deposits held by banks on behalf of other banks and do not belong to the public.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)Explanation:- Gross Demand deposits comprises of all demand deposits of public and other bank held by a commercial banks. Net demand deposits comprises of only demand deposits belogs to general public. Money supply only include Net demand deposits of the public in the commercial banks. Thus both assertion and reason statements are true and reason is the correct explanation of the assertion statement.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Reverse repo rate is the ratio at which the Central Bank lends funds to banks.

Reason (R): When Reserve Repo Rate is raised, it encourages the commercial banks to park their funds with the central bank.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d)
Explanation:- Reserve Repo Rate is the rate at which commercial banks deposit their funds with RBI. If Reversse Repo Rate is raised, It incourages the commercial banks to park their funds with RBI than lending to the public. It reduces the money(credit) creation process.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Currency Money is also termed as Fiat Money.

Reason (R): Under the law, the currency must be accepted for payment of all debts.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Yes currency money is called fiat money. Fiat money is the money that is legal tender and has to be accepted in settlement of all economic transactions and debt. All currency notes and coins are legal tender under the law

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): The currency notes do not carry as much value in it, as is written, still possess general acceptance.

Reason (R): Currency notes are backed by a legal promise from the central bank.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:-Yes currency notes material is not that of value equal to the value given to it as it is legally back by the legal promise the central bank. Thus it is accepted at the value given to it by the RBI.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): To increase the money supply in the economy Central Bank reduces the margin requirement.

Reason (R): Decrease in margin requirements enhance the borrowing capacity of the public, which raises the money supply in the economy.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Margin requirement is the difference between the value of property and loan sanctioned over it by commercial bank. For example, if the value of property is 1 crore and margin requirements is 40%. The commercial bank would approve only 60 lakh loan over it. If margin requirements are reduced to 20%. Now commercial bank is able to approve 80 lakh proverty loan. It would encourage borrowing from public thus credit creation would increase.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Paper Money is becoming more popular these days.

Reason (R): It is generally acceptable and convenient to carry.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Paper money (currency notes) are easy to carry and store. Thus are more popular than coins

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Demand deposits are not legal tenders.

Reason (R): Demand deposits are the deposits that can be easily withdrawable on demand, by cheque or otherwise, by the depositor from his/her bank account.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – b)
Explanation:- Yes Demand deposits are not legal tender. As seller or accepter has the right to refuse to accept payment in the form of cheques or online mode. Thus assertion is true. The holder of the demand deposits can withdraw money out of it any time through cheque, onlin transaction ant ATM. Reason are is true. But Reason does not explain why Demand deposits are not the legal tender.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Currency held by the public is a monetary liability of a central bank.

Reason (R): Central Bank controls credit, whereas commercial bank creates credit with the deposits.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – b)
Explanation:- Both Assertion and Reason are True. But Reason does not explain why currency held by the public is the monetary liability of the central bank.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): In a modern economy, money comprises cash and bank deposits.

Reason (R): Money supply includes currency held by the public and net demand deposits held by commercial banks.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Money supply comprises of all types of currency (notes and coins) and Demand deposits with the commercial banks

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A) Central bank as a banker to the government, works as a financial adviser.

Reason (R) Government borrows internally from banks and the general public.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – b)
Explanation:- Both Assertion and Reason are ture. But Reason does not explain how a central bank is the banker of the government.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Besides the central banks, commercial banks are the other type of institutions that are a part of the money-creating system of the economy.

Reason (R): Commercial banks accept deposits from the public and lend out part of these funds to those who want to borrow.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Yes Central bank and commercial both creates money. Commercial bank creates money by lending the money to the public. It creates a new demand deposit. This demand deposits works as the money.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): We can still encounter a barter system in the modern economic system.

Reason (R): People exchange old clothes for utensils.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Yes, Exchanging cloths for utensils is the kind of barter system that sitll can be seen in cityies and villages.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Quantitative tools include persuasion by the central bank in order to make commercial banks discourage or encourage lending.

Reason (R): Quantitative tools control the extent of the money supply by changing the Cash Reserve Ratio (CRR) or Statutory Liquidity Ratio (SLR) or Bank Rate or Repo Rate or Reverse Repo Rate, or through Open market operations (OMO).

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d)
Explanation:- Quantitative tools are not the persuasive (Suggestive) tools. Thease are the hard core rules in quantity form that has to be followed as these are laid out by central bank. Thus Assertion is false. Quantitative measures comprises of Bank Rate, Repo Rate, Reserve Repo Rate, etc. Thus Reason is true.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Money Supply is considered to be a stock concept.

Reason (R): Money Supply is measured at a particular point in time.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Money is measured at a particular point of time. Thus it is a stock concept.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Higher the value of LRR, the higher the value of total deposits that are generated in the economy.

Reason (R): There exists an inverse relation between Money Multiplier and LRR.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d)
Explanation:- Higher is the value of LRR, Lower is the total deposits. Thus Assertion is False. There exists inverse raltionship between Money multiplier and LRR. Thus Reason is true.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): M1 measure of the money supply is defined as follows: M1 = CU + DD, where CU is Currency (notes) plus coins) held by the public and DD is ‘net’ demand deposits held by commercial banks. The word ‘net’ here implies that only deposits of the public held by the banks are to be included in the money supply.

Reason (R): The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of the money supply.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Money supply includes net demand deposits. Net demand deposits only includes demand deposits by the public. Interbank deposits are not included in it.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Central Bank advises the government on different economic and monetary matters.

Reason (R): Central Bank acts as an agent of the central government.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- RBI act as the banker to the government and advises it on monetary and economic matters.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): LRR is the fraction of deposits that are kept with the central bank as cash reserves.

Reason (R): The value of LRR is decided by the central bank.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – d),br>Explanation:- CRR is the fraction of LRR that is kept as the ratio of demand deposits by the central bank. Thus Assertion is false. The value of LRR is decided by the central bank. Thus Reason R is True.

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Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Credit creation is inversely related to the legal reserve ratio.

Reason (R): Credit creation = Initial Deposits × 1/LRR. Any increase in LRR will decrease the credit creation power of the commercial banks (banking Systems)

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Credit (Money) creation is inversely related to LRR. Thus Assertion is true. Reason explains it. Thus Reason R is true and is the correct explanation of Assertion.

Read the following statements: Assertion (A) and Reason (R). Choose one of the correct alternatives given below:

Assertion (A): Credit creation is inversely related to the money multiplier.

Reason (R): Credit creation = Initial Deposits × Money Multiplier (1/LRR). With the same initial deposit total credit, creation decreases with a decrease in the value of the money multiplier.

Alternatives:-

a) Both Assertions (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)

c) Assertion (A) is True but Reason (R) is False

d) Assertion (A) is False but Reason (R) is True

Ans – a)
Explanation:- Yes, Credit creation is inversely related to the monly multiplier. Thus Assertion is true. Reason Explains the relationship between credit creation and money multiplier. Thus Reason is true and the correct explanation of Assertion.

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Anurag Pathak
Anurag Pathak is an academic teacher. He has been teaching Accountancy and Economics for CBSE students for the last 18 years. In his guidance, thousands of students have secured good marks in their board exams and legacy is still going on. You can subscribe his youtube channel and can download the Android & ios app for free lectures.
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