Important MCQs of Money and Banking chapter class 12 Economics

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Must do MCQs of Money and Banking units of Macroeconomics Class 12

Following are the MCQs

1 Which of the following makes a financial institution a bank?

a) Accepting deposits
b) Lending
c) Accepting demand deposits
d) Accepting time deposits

Ans. a)

2. Creation of money by commercial banks refers to:

a) Creation of bank deposits
b) Issuing currency
c) Both a) and b)
d) Neither a) nor b)

Ans:- a)

3. How much money are banks able to create is determined by:-

a) Initial deposits
b) SLR
c) CRR
d) All of these

Ans:- d)

4. The Value of Money Multiplier equal:-

a) 1/SLR
b) 1/CRR
c) 1/(SLR + CRR)
d) None of these

Ans:- c)

5. Given CRR = 4% and SLR = 16%, the value of money multiplier is:-

a) 25
b) 6.25
c) 5
d) 8.33

Ans:- c)

6. When the central bank sells securities in the market, the credit creation capacity of the commercial banks is likely to:-

a) Rise
b) Fall
c) May rise or may fall
d) No effect

Ans:- b)

7. Lowering of CRR by the central bank has the following impact on the credit creation capacity of the commercial banks:-

a) Negative
b) Positive
c) Can be negative or can be positive
d) No effect

Ans:- b)

8. Raising Reverse Repo Rate by the central bank is likely to have the following impact on demand for goods and services in the economy.

a) Rise
b) Fall
c) May rise or may fall
d) No effect

Ans:- b)

9. With lowering margin requirements by the Central bank, the borrowing capacity of the borrowers:-

a) Rises
b) Falls
c) May rise or may fall
d) No effect

Ans:- a)

10. What items are not included in Money supply measure?

a) Currency and coins with the public
b) inter-bank deposits
c) Other deposits with RBI
d) Net demand deposits with banks

Ans:- b) Inter-bank deposits

11. High powered Money consists of:-

a) Currency and coins held by the public
b) Currency, cash reserves with banks and demand deposits
c) Currency held by public and cash reserves with banks
d) Currency and demand deposits

Ans:- c)

12. Money Supply refers to:

a) Total volume of money held by public at a particular point of time
b) Total volume of money held by public over a period of time
c) Total volume of money held by the government
d) Both a) and b)

Ans:- a)

13. Money Supply is a__________concept:-

a) Stock
b) Flow
c) Both a) and b0
d) Neither a) nor b)

Ans:- a)

14. Which one of these is a limitation of the barter exchange?

a) lack of double coincidence of wants
b) lack of store of value
c) lack of common measure of value
d) All of these

Ans:- d)

15. Who regulates money supply?

a) Government of India
b) Reserve Bank of India
c) Commercial Banks
d) Planning Commission

Ans:- b)

16. Which of the following is not a problem of barter system of exchange?

a) Store of value
b) Double Coincidence of wants
c) Unit of Account
d) Unemployment

Ans:- d)

17. Money supply includes:-

a) All deposits in Banks
b) Only Demand deposits in Banks
c) Only Time Deposits in Banks
d) Currency with the Banks

Ans:- b)

18. Supply of money refers to quantity of money:-

a) As on 31st March
b) During any specified period of time
c) As on any point of time
d) During a fiscal year

Ans:- c)

19. ____________is the main source of money supply in an economy.

a) Central Bank
b) Commercial Banks
c) Both a) and b)
d) Government

Ans:- Both a) and b)

20. Name the institution which performs the functions of accepting deposits, granting loans and making investments, with the aim of earning profits:

a) Commercial Banks
b) Central Bank
c) Neither a) nor b)
d) Both a) and b)

Ans:- a)

21. This function of the Central Bank involves buying and Selling of government securities from or to the public.

a) Selective Credit Controls
b) Legar Reserve Requirements
c) Open Market Operations
d) None of these

Ans:- c)

22. Name the credit-control method which refers to the difference between the amount of loan and market value of the security offered by the borrower against the loan.

a) Selective Credit Controls
b) Moral Suasion
c) Margin Requirements
d) Legal Reserve Requirements

Ans:- c)

23. 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

Ans:- a)

24. Through the process of______________commercial banks are able to create credit, which is in far axcess of the initial deposits.

a) Advancing loans
b) Money creation
c) Accepting Deposits
d) None of these

Ans:- b)

25. What will be the effect of increase in the ‘Repo Rate’ on the Money Supply?

a) Money supply will increase
b) Money supply will decrease
c) Money supply will remain same
d) Money supply will initially increase and then it will decrease

Ans:- b)

26. The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is Called:-

a) Statutory liquidity ratio
b) Deposit ratio
c) Cash reserve ratio
d) Legal reserve ratio

Ans:- c)

27. Banks create credit:-

a) Out of nothing
b) on the basis of their securities
c) on the basis of theri total assets
d) on the basis of deposits

Ans:- d)

28. If the total deposits created by banks is ₹ 10,000 crores and legal reserve requirements is 40%, then amount of initial deposits will be____________

a) ₹ 2000 crore
b) ₹ 3000 crore
c) ₹ 4000 crore
d) ₹ 14000 crore

Ans:- c)

29. Which of the following will increase the money supply?

a) Fall in repo rate
b) Purchase of securities in the open market
c) Decrease in cash reserve ratio
d) All of these

Ans:- d)

30. What is the other name of money multiplier?

a) Credit Multiplier
b) Deposit Multiplier
c) Cash Reserve Ratio
d) Non of these

Ans:- b)

31. In order to reduce credit in the country, RBI may:-

a) Buy securities in the open market
b) Sell securities in the open market
c) Reduce cash reserve ratio
d) Reduce Repo Rate

Ans:- b)

32. The one rupee note and coins are issued by:-

a) RBI (Central Bank)
b) Commercial Bank
c) Ministry of finance
d) Central Government

Ans:- c)

33. Which of these is not the function of central bank?

a) Accepting deposits of general public
b) Custodian of foreigh exchange reserve
c) Banker’s Bank
d) Currency Authority

Ans:- a)

34. Other name of legal reserve requirement is:-

a) Cash reserve ratio
b) Statutory liquidity ratio
c) required reserve ratio
d) Bank rate

Ans:- c)

35. Which of the following is not the function of the central Bank:

a) Banking facilities to government
b) Banking facilities to public
c) Lending to government
d) Lending to commercial banks

Ans:- b)

36. Which of the following instrument can not be used by central bank to control money supply?

a) Open Market operations
b) Bank rate
c) Repo Rate
d) Government spending

Ans:- d)

37. Which bank controls the banking and monetary structure of India?

a) Reserve bank of India
b) State Bank of India
c) World Bank
d) Axis Bank

Ans:- a)

38. What is the value of money multiplier when initial deposits are ₹500 crores and LRR is 10%.

a) 0.1
b) 0.2
c) 10
d) 20

Ans:- c)

39. What happens where there is an increase in the margin requirements.

a) It reduces the borrowing capacity and money supply
b) Encourages people to borrow more and money supply rise
c) No change in money supply
d) None of these

Ans:- a)

40. Which institution performs the activity of credit creation:-

a) Commercial Banks
b) Central bank
c) Both a) and b)
d) Neither a) nor b)

Ans:- a)

41. Which of these conditions is needed for a financial institution to become a bank?

a) Accepting deposits
b) Advancing loans
c) Both a) and b)
d) Neither a) nor b)

Ans:- c)

42. _______refers to that portion of total deposits of a commercial bank which it has to keep with itself in the form of liquid assets.

a) Cash Reserve Ratio
b) Statutory Liquidity Ratio
c) Bank Rate
d) Repo Rate

Ans:- b)

43. Which of the following agency is responsible for issuing ₹ 1 currency note in India?

a) Reserve Bank of India
b) Ministry of Commerce
c) Ministry of Finance
d) Niti Aayog

Ans:- c)

44. Reverse Repo Rate is the rate at which Central Bank:-

a) Lends Money to Commercial Banks for short term
b) Lends Money to Commercial Banks for long term
c) Accepts deposits from the commercial Banks
d) None of these

Ans:- c)

45. Demand Deposits include:-

a) Saving Account deposits and fixed deposits
b) Saving Account deposits and current account deposits
c) Current account deposits and fixed deposits
d) All types of deposits

Ans:- b)

46. Repo rate is the rate at which:-

a) Commercial Banks purchase government securities from the central bank
b) Commercial banks can take loans from the central bank
c) Commercial banks can keep their deposits with the central bank
d) Short term loans are given by commercial banks

Ans:- b)

47. Which of the following is not a quantitative Method of Credit Control?

a) Open Market Operatoin
b) Margin Requirements
c) Variable Reserve Ratio
d) Bank Rate Policy

Ans:- b)

48. Credit Creation by commercial banks is determined by:-

a) Cash Reserve Ratio (CRR)
b) Statutory Liquidity Ratio (SLR)
c) Initial deposits
d) All of the above

Ans:- d)

49. The central bank can increase availability of credit by:-

a) Raising repo rate
b) Raising reverse repo rate
c) Buying government securities
d) Selling government securities

Ans:- c)

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