Free Monetary Policy 03 Practice Test - 12th Grade - Commerce 

Question 1

Which of the following does not come under quantitative methods of monetary policy?

A.

Repo rate

B.

Moral suasion

C.

Cash reserve ratio

D.

Open market operations

SOLUTION

Solution : B

Moral suasion is a qualitative method, and other options are quantitative methods of monetary policy.

Question 2

Open market operations as an instrument of credit control are performed by:

A.

The central bank of the country

B.

The commercial bank of the country

C.

Both commercial banks and the central bank 

D.

None of these

SOLUTION

Solution : A

Open market operations as an instrument of credit control are performed by RBI.

Question 3

If the CRR is 5%, what is the value of money multiplier?

A.

25

B.

30

C.

20

D.

0

SOLUTION

Solution : C

Money Multiplier =1CRR

=15100=20

Question 4

Which of the following is(are) indirect instruments of Monetary Policy?

A.

Open market operations

B.

Cash Reserve Ratio

C.

Statutory Liquidity Ratio

D. None of the above

SOLUTION

Solution : D

All the given options are direct insturments of monetary policy. 

Question 5

A borrower comes into the bank and pays off 10,000 Rupees of his loan. This was a cash payment by the borrower to the bank. What was the immediate effect on the nation’s money supply?

A.

Cannot be determined

B.

Remains constant

C.

Increases

D.

Decreases

SOLUTION

Solution : D

The money supply decreased by 10,000 Rupees. While the cash was in the borrower’s possession, it was part of the nation’s money supply. As a reserve in a bank, it is not included in the money supply.

Question 6

Which of the following is not a monetary tool?

A.

CRR

B.

SLR

C.

Deficit financing

D.

Open market operations

SOLUTION

Solution : C

Out of the given options, deficit financing is not a monetary tool.

Question 7

The maximum limit of SLR is___

A.

30%

B.

35%

C.

45%

D.

40%

SOLUTION

Solution : D

The maximum limit of SLR is 40%.

Question 8

If the money supply were decreased, what would happen to the price level?

A.

Increase

B.

Decrease

C.

Remains constant

D.

Either A or B

SOLUTION

Solution : B

A decrease in the money supply will lead to a decrease in price levels.

 

Question 9

An increase in the money supply will cause the AD curve to:

A.

shift leftward

B.

shift rightward

C.

remain unchanged

D.

shift leftward without affecting the price level

SOLUTION

Solution : B

An increase in the money supply increases the aggregate demand, as people now hold more money.

Question 10

Which of the following is(are) correct?

A.

SLR: the commercial bank keep the minimum percentage of deposits with itself

B.

SLR: the commercial bank keep the minimum percentage of deposit with the central bank

C.

CRR: the commercial bank keeps the minimum percentage of deposits with the central bank

D.

CRR: the commercial bank keeps the minimum percentage of deposits with itself

SOLUTION

Solution : A and C

Statutory liquidity ratio (SLR) is the minimum percentage of deposits to be kept by the commercial bank with itself. Cash Reserve Ratio (CRR) is the minimum percentage of deposit to be kept by the commercial bank with the central bank.

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