Case/Source Based MCQs of Money and Banking chapter class 12

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Looking for Case study or Source-Based MCQs (Multiple Choice Questions) of Money and Banking chapter of Macroeconomics Class 12 CBSE, ISC and other state Board.

I have made a collection of important MCQs

Lets Practice.

Case/Source Based Multiple Choice Questions of Money and Banking Chapter Class 12

Following are the MCQs

1. Based on the passage below, answer the following questions.

The Reserve Bank of India (RBI) is India’s Central Bank, also known as the banker’s bank. The RBI controls the monetary and other banking policies of the Indian government. The Reserve Bank of India (RBI) was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934. The role of RBI has undergone a significant change after the introduction of the new Economic Policy in 1991.

The Reserve Bank of India (RBI) is India’s central bank and regulatory body under the jurisdiction of the Ministry of Finance, the RBI is responsible for the issue and supply of the Indian rupee and the regulation of the Indian Banking system. It also manages the country’s main payment systems and works to promote its economic development.

On 8 November 2016, the government of India announced the demonetization of all ₹ 500 and ₹ 1000 banknotes of the Mahatma Gandhi Series on the recommendation of the Reserve Bank of India (RBI).

Answer the following Questions.

1. Why RBI is said to be a banker of the bank. Choose the correct option

a) Lender’s of last resort
b) controller of credit
c) Decide LRR
d) None of the above.

Ans – a)

2. ‘RBI is responsible for issue and supply of Indian Rupee in the economy’. Identify the function of RBI and explain.

a) Central bank has the authority to issue currency in the economy.
b) This develops the public faith in the system of note circulation.
c) It allows the central bank to supervise and control the money supply.
d) All of the above.

Ans – d)

3. Define Demonetisation.

a) it refers to selling the public sector to the private.
b) It refers to the release of new coins.
c) It refers to the process where currency notes of certain denominations are declared
no longer as legal tender.
d) None of the Above.

Ans – c)

4. How the role of RBI has changed after the 1991 New Economic Policy.

a) Its role changes from the regulator to facilitator
b) Interest rates decision are left with financial institutions
c) It only formulates the guidelines and decision-making rights are left with financial
institutions
d) All of the above.

Ans – d)

The Monetary Policy Committee of the Reserve Bank of India kept interest rates on hold Thursday even as it vowed to keep policy sufficiently loose to help revive the coronavirus battered economy. Accepting a key demand of lenders and the corporate sector, the central bank cleared a one-time restructuring of loan accounts to bail out stressed borrowers, including personal, small, and medium loans.

The details of the loan restructuring scheme – expected to kick in after the moratorium on loan repayments ends. August 31 – will be worked out by a committee headed by former ICICI Bank Chairman KV Kamath. The RBI also continued to provide support on the liquidity front and opened a new targeted window for small lenders.

The central bank kept the repo rate unchanged at 4 percent and reduced the reverse repo rate to 3:35 percent.

Answer the following questions on the basis of the above Case.

Q.1 Suppose you are a member of the Monetary Policy Committee of the RBI. You have suggested the ___________ of the money supply be ensured to help revive the coronavirus battered economy.

a) restriction
b) release
c) doubling
d) no change

Ans – b)

Q.2 “The Monetary Policy Committee of the RBI kept interest rates on hold—-“. Which of the following is highlighted above by the term ‘interest rates’?

a) Bank Rate and Repo Rate
b) Bank Rate and Lending Rate
c) Repo Rate and Reverse Repo Rate
d) Bank Rate and Reverse Repo Rate

Ans – c)

Q.3 What does the ‘Repo Rate’ mean?

a) Rate at which banks borrow from the RBI for short term
b) Rate at which banks borrow from the RBI for long term
c) Rate at which banks deposit excess funds with the RBI
d) Rate at which banks lend funds to the public

Ans – a)

Q.4 ‘Reduction in Repo Rate by RBI’ is likely to _ the demand for goods and services in the economy.

a) increase
b) decrease
c) double
d) not effect

Ans – a)

The key indicators of RBI Monetary Policy along with their current rates in the table given below:

IndicatorCurrent Rate
CRR3%
SLR18.50%
Repo Rate4.00%
Reverse Repo Rate3.35%
Bank Rate4.65%

On 9th October 2020, RBI has kept the Repo Rate unchanged at 4.00% and reduced reverse repo rate to 3.35%. In addition to that, the bank rate stands at 4.65%. This has been done to limit the damage to the economy caused by the Covid-19 and subsequent lockdowns.

Q.1 What does RBI Monetary Policy 2020 mean?

a) It is the policy formulated by the RBI in 2020 related to expenditure and taxation of the government.
b) It is the policy formulated by the RBI in 2020 realted to money matters of the country.
c) It is the policy formulated by the RBI in 2020 related to the government budget.
d) It is the policy formulated by the RBI in 2020 realted to the distribution of credit among users as well as the
rate of interest on borrowing and lending.

Ans – b), d)

Q.2 What does the ‘Bank Rate’ mean?

a) Rate at which banks borrow from the RBI for short term
b) Rate at which banks borrow from the RBI for long term
c) Rate at which banks deposit excess funds with the RBI
d) Rate at which banks lend funds to the public.

Ans – b)

Q.3 Which of the following is a quantitative credit control technique of RBI?

a) CRR
b) SLR
c) Repo Rate
d) All of these

Ans – d)

Q.4 Cut in Reverse Repo Rate is likely to _ the demand for goods and services in the economy during Covid – 19 lockdowns.

a) increase
b) decrease
c) double
d) not effect

Ans – a)

Case Study – 3

Keeping in view the continuing hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, the Reserve Bank of India has extended the relaxation of the minimum daily maintenance of the CRR of 80% for up to September 25, 2020. Currently, CRR is 3% and SLR is 18.50%.

“As announced in the Statement of Development and Regulatory Policies of March 27, 2020, the minimum daily maintenance of CRR was reduced from 90% of the prescribed CRR to 80% effective the fortnight beginning March 28, 2020 till June 26, 2020, that has now been extended up to September 25, 2020,” said the RBI.

Q.1 The full forms of CRR and SLR are:

a) Current Reserve Ratio and Statutory Legal Reserves
b) Cash Reserve Ratio and Statutory Legal Reserves
c) Current Required Ratio and Statutory Legal Reserves
d) Cash Reserve Ratio and Statutory Liquidity Ratio

Ans – d)

Q.2 What will be the value of money multiplier?

a) 33.33
b) 5.4
c) 4.65
d) None of these

Ans – c)

Q.3 SLR implies:

a) Certain percentage of the total banks’s deposits has to be kept in the current account with RBI
b) Certain percentage of net total demand and time deposits has to be kept by the bank with themselves.
c) Certain percentage of net demand deposits has to be kept by the banks with RBI
d) None of the above

Ans – b)

Decrease in CRR will lead to __ .

a) fall in aggregate demand in the economy.
b) rise in aggregate demand in the economy
c) no change in aggregate demand in the economy
d) fall in general price level in the economy

Ans – b)

Case Study – 4

Due to Covid – 19, the Reserve Bank of India (RBI), cut Repo Rate to 4.4% the lowest in at least 15 years. Also, it reduced the CRR by 100 basis points. Previously, it was 4%. RBI governor Dr. Shaktikanta Das predicted a big global recession and said India will not be immune. It all depends on how India responds to the situation. Aggregate demand may weaken and ease core inflation.

Q.1 CRR stands for:

a) Cash Reserve Ratio
b) Current Reserve Ratio
c) Cash Required Rate
d) Current Required Rate

Ans – a)

Q.2 Cut in Repo Rate by RBI is likely to __ the aggregate demand in the Indian Economy.

a) increase
b) decrease
c) double
d) not effect

Ans – a)

reduced the CRR by 100 basis points. Previously, it was 4%.” Thus, CRR is reduced to ___ .

a) 5%
b) 3%
c) 96%
d) 104%

Ans – b)

Besides reduction in CRR and Repo Rate, What other measures can be taken by the Government of India through
its budgetary policy to combat recession?

a) Decrease the bank rate
b) Sell government securities in the open market
c) Increase margin requirements on secured loans
d) Decrease taxes and increase government expenditure

Ans – d)

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