Multiple Choice Questions (MCQs)

1 Supply of money is a:
(a)Flow variable (b)Stock variable
(c)Real flow (d)None of these
2 Supply of money refers to

(a) currency held by the public

(b) currency held by Reserve Bank of India

(c) currency held by the public and demand deposits with the commercial banks

(d) currency held by Reserve Bank of India and demand deposits with commercial
bank
3 Demand deposit 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
4 is the main source of money supply in an economy.
(a) Central Bank (b) Commercial Banks
(c) Government (d) Both (a) and (b)
5 Which of the following is not included in money supply?
(a) Currency held by public (b) Inter-bank-deposits
(c) Demand deposits in Banks (d) Saving deposits with post office banks.
6 Supply of money refers to the quantity of money
(a) on 31st March (b) during any specific period of time
(c) on any point of time (d) during a fiscal year
7 M1 of money supply does not include.
(a) Currency held by public
(b) Other deposits in RBI
(c) Demand deposits with the Commercial Banks
(d) Net time deposits with banks
8 Which of the following statements is correct?
(a) Supply of money refers to stock of money held by public at a point of time
(b) Supply of money is a flow variable
(c) Supply of money includes cash reserve of banks
Supply of money refers to bank money
9 Which of the following is the supplier of money?

(a) Government and banking system (b) Cooperative societies

(c) General public (d) Life insurance corporation

10 Deposits which can be withdraw on demand by the depositors are
called
(a) Time deposits (b) Savings deposits
(c) Term deposits (d) Demand deposits
11 Which of the following is the Central Bank in India?
(a) State Bank of India (b) Punjab national bank
(c) Reserve Bank of India (d) New Bank of India
12 is the main function of central Bank.
(a) Notes issue (b) Credit creation
(c) Accepting deposits front e public (d) None of these
13 Which is the most liquid measure of the money supply?
(a) M4 (b) M3
(c) M2 (d) M1
14 Which of the following is not the function of the Central Bank?
(a) Banking facilities to government (b) Lending to commercial banks
(c) Banking facilities to public (d) Lending to government
15 When the central act as a banker to the government, what does it do?

(a) It carries out government transactions

(b) It advises on monetary and financial matters

(c) It keeps accounts of the government

(d) It carries out government transactions, advises on monetary and financial

matters and keeps accounts of the government
16 Central Bank is an apex bank of the country that:

(a) Controls the entire banking system of the country

(b) accepts and lending of deposits to public
(c) store of value
(d) creates credit
17 The lender of the last resort is the function of:

(a) Rural Bank (b) Central Bank

(c) Post office (d) Commercial bank

18 Credit Control means

(a) Contraction of credit only (b) Extension and contraction of money supply

(c) extension of credit only (d) supply of money remains the same
19 Quantitative instrument of monetary policy includes:

(a) Margin Requirement (b) Direct Action

(c) Statutory Liquidity Ratio (d) Rationing of Credit

20 Identify qualitative measure of central bank:

(a) Bank rate (b) Open market operation

(c) Margin Requirement (d) Cash reserve ratio

21
Through the process of commercial banks are able to create credit, whichis in
far excess of the initial deposits.
(a) Secondary deposits (b) Advancing loans
(c) Accepting deposits (d) Providing overdraft facility
22 is the rate of interest charger by the Central Bank on loans given to
commercial banks.
(a) Bank rate (b) CRR
(c) Statutory liquidity Ratio (d) Reserve Repo Rate
23 Ms. Sakshi, an economics teacher, was explaining the concept of ‘minimum percentage
of the total deposits to be kept by any commercial bank with the CentralBank of the
country, as per norms and statute prevailing in the country’.
From the following, choose the correct alternative which specifies towards the concept
explained by her?
a. Cash Reserve Ratio
b. Repo Rate
c. Bank Rate
d. Statutory Liquidity Ratio
24 Initial deposits made by the people from their own resources are called

(a) Time deposits (b) Secondary deposits

(c) Primary deposits (d) None of these
25 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) Statutory Liquidity Ratio(SLR) (b) Cash Reserve Ratio(CRR)
(c) Bank Rate (d) Reserve Repo Rate
26 Which agency is responsible for issuing Rs.1 currency notes in India?
(a) Ministry of Finance (b) Ministry of Home Affairs
(c) Reserve Bank of India (d) All of the above
27 Who regulates money supply?
(a) Government of India (b) Reserve Bank of India
(c) NITI Aayog (d) Commercial Banks
28 Who creates credit in the economy?
(a) Government of India (b) Reserve Bank of India
(c) NITI Aayog (d) Commercial Banks
29 If the total deposits created by commercial banks is ₹. 10,000 crores and legal
reserve requirements is 40% then amount of initial deposits will be(a) ₹ 2000 (b) ₹
2500 (c) ₹ 4000 (d) ₹ 10,000
30 What will be the value of money multiplier when initial deposits are ₹ 500 croresand
LRR is 10%?
(a) 0.1 (b) 0.2 (c) 10 (d) 20
31 The amount of initial deposits is 3000cr and LRR is 25%. Calculate the amount of
total deposits created by commercial banks
(a) 10000 crore (b) 11000 crore (c) 12000 crore (d) 13000 crore
32 Deposit creation by bank comes to an end when
(a) Fresh deposit with banks become zero
(b) LRR become zero
(c) Money multiplier become zero
 (d) Total reserve equal to initial deposit

33 What would be the total money creation in the economy, If initial fresh depositswith
banks = 50,000 and LRR = 20%.
(a) `2,50,000 (b) `5,00,000 (c) `10,00,000 (d) `12,00,000
34 Which one of the following is used for credit creation:

(a) K = 1/LRR (b) K = 1/SLR (c) K = 1/Bank Rate (d) K = 1/ Repo Rate
35 The value of credit multiplier will be high when

(a) Cash reserve ratio is high (b) Cash reserve ratio is low

(c) Cash reserve ratio is zero (d) Cash reserve ratio is infinity
36 In a hypothetical economy, Mr. Neeraj has deposited ₹100 in the bank. If it is assumed
that there is no other currency circulation in the economy, then the total money supply
in the economy will be

a) zero
b) ₹ 100
c) not defined
d) ₹ 120
37 Two friends Akash and Amit were discussing about the features of central bank.

“This features saves the commercial banks from possible breakdown”

The above mentioned statement was given by Akash, identify the feature was he
taking about…

(a) Banker’s bank (b) Lender of the last resort

(c) Controller of credit (d) Financial advisor

38 Read the following statements carefully and choose the correct alternatives given
below:

Statement 1 – Central bank lends money to borrowers at a very low interest. Statement 2

– Ministry of finance circulates all mint and one rupee note in India.Alternatives:

a) Both the statements are true.

b) Both the statements are false.
c) Statement 1 is true and Statement 2 is false
d) Statement 2 is true and Statement 1 is false
Read the following statements carefully and choose the correct alternatives given
39 below:

Statement 1 – The value of money multiplier is determined by the reserve ratio

prevailing in the monetary system.
 Statement 2 – The process of credit creation directly relates to the value of reserveratio.

Alternatives:
a) Both the statements are true.
b) Both the statements are false.
c) Statement 1 is true and Statement 2 is false
d) Statement 2 is true and Statement 1 is false
40 Choose the correct statement from given below

(a) Commercial banks create credit out of primary deposits.

(b) The money multiplier is directly related to the legal reserve ratio.

(c) The central bank of the country is not authorized to maintain foreign exchange
reserves.
All of the above
41 Assertion(A): Currency Held by Public is a monetary liabilities of central bank
Reason(R): Central bank control credit, whereas commercial bank create creditwith
currency held by Public.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
42 Assertion (A): Central Bank as a banker to the government, works as a custodianof
cash reserves.
Reason(R): The Central Bank acts as a clearinghouse for the transfer and settlementof
mutual claims of commercial banks.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
43 Assertion(A): Central bank as a banker to government, work as a financial advisor
Reason(R): Government borrow internally from banks and general public.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
44 Assertion(A): Demand deposits are also called bank money.
Reason(R): Demand deposits are created by commercial banks.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
 explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
45 Assertion(A): LRR represents the minimum reserve ratio essential to be maintainedby
banks.
Reason(R): Banks create deposits in the process of making loans to their
customers.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
46 Assertion(A): The Central Bank is also known as the bank of issue.
Reason(R): The Central Bank enjoys the sole monopoly of issuing currency to
ensure control over volume of currency and money supply.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
47 Assertion(A): Demand deposits are created by commercial banks.
Reason(R): Demand deposits form a significant part of the total money supply inthe
economy.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true
48 Assertion(A): Only net demand deposits held by commercial banks are taken aspart
of money supply.
Reason(R): Only deposits of the public held by the banks are included in money
supply

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true
49 Assertion(A): Credit creation is inversely related to the Legal Reserve Ratio.
Reason(R): LRR is fixed by the market forces of demand and supply.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true
50 Assertion(A): The monetary policy is the policy formulated by central bank of acountry
Reason(R) : The policy measures involves measures taken by the central bank to
regulate the supply of money, availability and cost of credit in the economy.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

51 Assertion(A): Banks issues currencies.

Reason(R) : Commercial Bank is an institution that accepts deposits and providesloans
to the public.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
52 Assertion(A): An increase in CRR results in decrease in the value of multiplier
Reason(R) : Banks lend money many times more than their cash reserves.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
53 Assertion (A)- Credit creation process increases the money supply in economy. Reason
(R)- through the credit creation process commercial banks can distributeloans many
times as compare to their primary deposits

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
54 Assertion (A)-settlement of liabilities of commercial banks is done by RBI. Reason(R)-
RBI holds the accounts of all commercial banks and commercial banks keep funds in it
essentially.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true
55 Assertion (A): Demand Deposits are considered as a convenient mode of payment
for execution of even the high value transactions.
Reason(R): Demand Deposits are non-withdrawable in nature and cannot bewithdrawn
against issue of cheques and other similar instruments of payment.

(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct
explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct
explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
Assertion(A) is false but Reason(R) is true

ANSWERS

Q.NO ANSWERS Q.NO ANSWERS Q.NO ANSWERS

1 B 21 C 41 B
2 C 22 A 42 B
3 B 23 A 43 C
4 D 24 C 44 A
5 B 25 A 45 B
6 C 26 A 46 A
7 D 27 B 47 B
8 A 28 D 48 A
9 A 29 C 49 C
10 D 30 C 50 A
11 C 31 C 51 D
12 A 32 D 52 B
13 D 33 A 53 B
14 C 34 A 54 B
15 D 35 B 55 C
16 A 36 B
17 B 37 B
18 B 38 D
19 C 39 C
20 C 40 A