Every question from this NCERT chapter, with a detailed explanation.
Consider the following statements regarding the functions of money: 1. Economic exchanges without money are referred to as liquidity exchanges. 2. The principal role of money is to facilitate exchanges by acting as a medium of exchange. 3. In a barter system, the search costs increase as the number of individuals in the economy increases. Which of the statements given above is/are correct?
With reference to the 'Unit of Account' function of money, consider the following statements: 1. If there is a general increase in the price level, the value of money in terms of commodities increases. 2. It allows the value of all goods and services to be expressed in monetary units. 3. It prevents the calculation of relative prices of different commodities. Which of the statements given above is/are correct?
Consider the following statements regarding money as a 'Store of Value': 1. Money is an asset that can act as a store of value. 2. The value of money is irrelevant for it to perform the function of a store of value. 3. Storage costs of money are considerably lower compared to perishable commodities like rice. Which of the statements given above is/are correct?
With reference to the demand for money, consider the following statements: 1. The demand for money is inversely related to the quantum of transactions in the economy. 2. A rise in income generally leads to a rise in the demand for money. 3. When interest rates go up, people become less interested in holding money. Which of the statements given above is/are correct?
Consider the following statements regarding the 'Spread' in the banking system: 1. It represents the profit appropriated by the Reserve Bank of India. 2. It is the difference between the interest rate charged from borrowers and the interest rate paid to depositors. 3. The spread is fixed by the Reserve Bank of India for all commercial banks. Which of the statements given above is/are correct?
Which of the following best defines 'High-Powered Money'?
Consider the following statements regarding the balance sheet of a bank: 1. Assets are recorded on the left-hand side and liabilities on the right-hand side. 2. Deposits held by the public in the bank are considered assets for the bank. 3. Reserves kept with the Central Bank are considered assets for the commercial bank. Which of the statements given above is/are correct?
Consider the following statements regarding the 'Speculative Motive' for demand for money: 1. It arises primarily from the transaction motive rather than the trade-off between money and bonds. 2. When the market rate of interest is very high, the speculative demand for money is low. 3. The price of a bond is inversely related to the market rate of interest. Which of the statements given above is/are correct?
Consider the following statements regarding the 'Cash Reserve Ratio' (CRR): 1. It acts as a tool to increase the credit creation capacity of commercial banks indefinitely. 2. It is the percentage of deposits that a bank must keep as cash reserves with the Central Bank. 3. An increase in CRR increases the value of the money multiplier. Which of the statements given above is/are correct?
If the Reserve Bank of India increases the Bank Rate, what is the likely impact on the economy?
With reference to 'Open Market Operations' (OMO), consider the following statements: 1. It refers to the buying and selling of bonds issued by the Government in the open market by the Central Bank. 2. When RBI buys a Government bond, it decreases the total amount of reserves in the economy. 3. Outright open market operations are permanent in nature. Which of the statements given above is/are correct?
Consider the following statements regarding 'Fiat Money': 1. It has intrinsic value equal to its face value. 2. Its value is derived from the guarantee provided by the issuing authority. 3. It includes currency notes and coins. Which of the statements given above is/are correct?
In the context of money supply, what does the term 'Net Demand Deposits' imply?
Consider the following statements regarding the 'Money Multiplier': 1. Its value is determined solely by the total amount of currency in circulation. 2. It is the ratio of the stock of money to the stock of high-powered money. 3. In a simplified economy, it is directly proportional to the reserve ratio. Which of the statements given above is/are correct?
Consider the following statements regarding the 'Lender of Last Resort' function: 1. It is performed by the Central Bank for the commercial banks. 2. It implies that the Central Bank lends funds to commercial banks without any collateral. 3. It helps commercial banks to create more credit. Which of the statements given above is/are correct?
Consider the following statements about 'Broad Money' (M3): 1. It excludes the currency held by the public which is part of M1. 2. It includes net time deposits of commercial banks. 3. It captures the total aggregate monetary resources of the banking sector. Which of the statements given above is/are correct?
Consider the following statements regarding the creation of money by the banking system: 1. When a bank lends to a person, the amount is deducted from the bank's capital reserves. 2. Banks can lend because they do not expect all depositors to withdraw their funds at the same time. 3. The total money supply in the economy decreases by the amount of the new deposit created. Which of the statements given above is/are correct?
With reference to the 'Speculative Demand for Money', consider the following statements: 1. It is inversely related to the market rate of interest. 2. It is independent of any expectations regarding future movements in bond prices. 3. If interest rates are expected to rise, people will convert their bonds into money. Which of the statements given above is/are correct?
Consider the following statements regarding 'Net Worth' in a bank's balance sheet: 1. It is the sum of Assets and Liabilities. 2. It is recorded on the right-hand side of the balance sheet if assets are greater than liabilities. 3. It represents the claims of the owners of the bank against the bank. Which of the statements given above is/are correct?
Consider the following statements regarding the 'Reverse Repo Rate': 1. It is the rate at which the Central Bank borrows money from commercial banks. 2. It involves the purchase of securities by the Central Bank from commercial banks. 3. An increase in the Reverse Repo Rate discourages banks from parking their funds with the RBI. Which of the statements given above is/are correct?
Which of the following best explains why demand deposits are considered money?
If the Central Bank sells securities in the open market, what is the immediate effect on the money supply?
Consider the following statements regarding the 'Opportunity Cost' of holding money: 1. It is the interest foregone by not holding interest-bearing assets like bonds or fixed deposits. 2. As the interest rate rises, the opportunity cost of holding money decreases. 3. People weigh the advantage of liquidity against this opportunity cost. Which of the statements given above is/are correct?
The 'Currency Deposit Ratio' in the banking system is primarily determined by:
Consider the following statements regarding 'Money Supply': 1. It is a flow variable. 2. It refers to the total stock of money in circulation among the public at a particular point of time. 3. It excludes money held by the government and the banking system. Which of the statements given above is/are correct?
Consider the following statements regarding the 'Transaction Demand for Money': 1. In a two-person economy, if income is paid monthly, the average money holding of each is half their monthly income. 2. Transaction demand is unrelated to the total volume of transactions in the economy. 3. It is independent of the timing of income receipts and expenditure. Which of the statements given above is/are correct?
What is the primary difference between 'Outright' Open Market Operations and 'Repo' operations?
Consider the following statements regarding the 'Bank Rate': 1. It is the rate at which the RBI lends to commercial banks. 2. It is considered a qualitative tool of monetary policy. 3. A fall in the bank rate can lead to an increase in the money supply. Which of the statements given above is/are correct?
Which of the following best describes 'Sterilisation' by the Central Bank?
Consider the following statements regarding 'Demand for Money': 1. It is a flow concept measured over a period of time. 2. It refers to the stock of money people are willing to hold at a particular point of time. 3. Velocity of money is a flow concept having a time dimension. Which of the statements given above is/are correct?
Consider the following statements regarding 'M4' money supply measure: 1. It includes M3. 2. It excludes total deposits with Post Office savings organizations. 3. It includes National Savings Certificates. Which of the statements given above is/are correct?
Match the following terms with their descriptions: Pair | Term | Description 1. | Narrow Money | M1 and M2 2. | Broad Money | M3 and M4 3. | Reserve Money | Currency issued by Central Bank 4. | Fiat Money | Currency backed by gold reserves Which of the pairs given above are correctly matched?
With reference to the 'Supply of Money', which of the following is true? 1. It is a flow variable. 2. It is regulated by the Reserve Bank of India. 3. Changes in money supply are influenced by the actions of the public, banks, and RBI.
Which of the following statements is correct regarding the 'Barter System'? 1. It relies on the direct exchange of goods for goods. 2. It eliminates the need for a double coincidence of wants. 3. It involves high search costs in a large economy.