Free Monetary Policy 01 Practice Test - 12th Grade - Commerce
Question 1
Deflation
Inflation
SOLUTION
Solution : B
Inflation refers to the increase in the quantity of money in circulation without any corresponding increase in goods thus leading to an abnormal rise in price levels.
Question 2
When RBI wants to reduce liquidity in the banking system,
It increases the CRR
It increases the repo rate
It increases the SLR
It increases the reverse repo rate
SOLUTION
Solution : A
When RBI wants to reduce liquidity in the banking system, it increases the CRR as it reduces the money supply in the economy.
Question 3
The rate at which RBI lends money to commercial banks is called:
Repo rate
Reverse repo rate
Revised repo rate
Renewal repo rate
SOLUTION
Solution : A
The rate at which the RBI lends money to commercial banks is called Repo rate.
Question 4
The reserves held by commercial banks with the RBI , over and above the statutory minimum, are called
Cash reserves
Deposit reserves
Excess reserves
Momentary reserves
SOLUTION
Solution : C
The reserves held by Commercial Banks with the RBI over and above the statutory minimum, are called excess reserves.
Question 5
Which of the following is a measure taken by RBI to control inflation in our country?
Increase in CRR
Increase in SLR
Both A and B
Neither A nor B
SOLUTION
Solution : C
In the situation of inflation, the RBI aims to reduce the money supply. So, the RBI can increase CRR and/or SLR. This way, banks will have a lesser lending capacity as they have to use more the deposits as reserves. Thus the money supply will fall.
Question 6
The total amount of money stock in the economy is much greater than the volume of high powered money. State true or false.
True
False
SOLUTION
Solution : A
The given statement is true because the commercial banks create this extra amount of money by giving out a part of their deposits as loans.
Question 7
Acting as a
clearing
reserving
power
None of these
SOLUTION
Solution : A
The central bank acts a clearing house ensuring that accounts are settled and reducing the amount of labour and time involved.
Question 8
Which of the following is NOT true about the central bank?
It deals directly with commercial banks and the public
It has full control over the money supply
It is the custodian of reserves
It is the sole authority to issue currency notes
SOLUTION
Solution : A
The central bank only deals with commercial banks, and not directly with the public. Other statements are correct.
Question 9
If CRR is increased by RBI, what will be the effect on the market?
Banks will have to maintain more money as cash or deposits with RBI, hence will have less money to lend or invest, thus increasing the liquidity in the market
Banks will have to maintain more money as cash or deposits with RBI, hence will have less money to lend or invest, thus reducing the liquidity in the market
There will be no change in the market
None of these
SOLUTION
Solution : B
A high value of CRR forces banks to keep more reserves and hence helps increase the value of reserve deposit ratio, thus diminishing the value of the money multiplier and money supply or liquidity in the economy.
Question 10
The effective multiplier is(are) given by
1/(CRR+Excess reserve Ratio)
1/Effective Reserve Ratio
1/(CRR-Excess reserve Ratio)
(CRR-Excess reserve Ratio)
SOLUTION
Solution : A and B
Effective Multiplier =1(CRR+Excess reserve Ratio)
It is also given by 1/Effective Reserve Ratio.