Free Monetary Policy 02 Practice Test - 12th Grade - Commerce 

Question 1

Which among the following institutions have to maintain SLR?

A.

Scheduled Commercial Banks

B.

Urban Co-operative Banks

C.

State and Central Co-operative Banks

D.

All of the above

SOLUTION

Solution : D

All the given options have to maintain SLR.

Question 2

Unconventional monetary policies have not been regarded successful in most cases in the past. State true or false.

A.

True

B.

False

SOLUTION

Solution : B

Unconventional monetary policies have been followed by several economies and in most of the cases, it has been successful. For example, quantitative easing policy adopted by Bank of Japan in 2000 was regarded successful. 

Question 3

How much interest is paid by the RBI on the money deposited under the CRR measure?

A.

Equal to the rate of CRR

B.

More than the CRR

C.

Less than the CRR

D.

No interest is paid by the RBI

SOLUTION

Solution : D

No interest is paid by the RBI on the money deposited under the CRR measure

Question 4

"Open Market Operations" refers to:

A.

Sale and purchase of bonds and securities by the commercial banks to the customers.

B.

Sale and purchase of bonds and securities to the commercial banks by the RBI.

C.

Sale and purchase of bonds and securities by the RBI to the government.

D.

None of the above

SOLUTION

Solution : B

Open Market Operations means sale and purchase of bonds and securities to the commercial banks by the RBI.

Question 5

The increase in the ___will increase the cost of borrowing and lending of the banks.

A.

Repo Rate

B.

Reverse Repo Rate

C.

Base Rate

D.

None of these

SOLUTION

Solution : A

The increase in the Repo Rate will increase the cost of borrowing and lending of the banks.

Question 6

If price drops and people are not willing to pay increased prices despite having more money, this leads to inflation.

A.

True

B.

False

SOLUTION

Solution : B

If prices increase, then this will be counted as inflation. If people don’t want to buy goods, this is another issue. Inflation measures the price of goods in shops.

Question 7

When it takes a large amount of currency to purchase goods and services, what is the price level?

A.

Low

B.

High

C.

Keeps changing

D.

Cannot be determined

SOLUTION

Solution : B

When it takes a large amount of currency to purchase goods and services, the purchasing power is low, which means the price levels are high.

Question 8

If the price level increases by 3%, what is the inflation rate over that period?

A.

Zero

B.

3%

C.

5%

D.

None of the above

SOLUTION

Solution : B

Inflation rate refers to the increase in price levels.

Question 9

How does inflation affect money stored under a mattress?

A.

Increases its value

B.

Decreases its value

C.

No effect

D.

Reduces worth to zero

SOLUTION

Solution : B

Inflation means an increase in price levels or decrease in the purchasing power. Hence it reduces the value of money stored under the mattress.

Question 10

Which of the following is not the function of the Reserve Bank of India ?

A.

Acting as banker to the Government

B.

Keeping of Foreign Exchange Reserve

C.

Issuing of coins

D.

Regulating credit in the country

SOLUTION

Solution : C

Issuing of coins is not a function of the Central Bank.