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Test: Money and Banking- Assertion & Reason Type Questions- 1 - Commerce MCQ


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10 Questions MCQ Test Economics Class 12 - Test: Money and Banking- Assertion & Reason Type Questions- 1

Test: Money and Banking- Assertion & Reason Type Questions- 1 for Commerce 2024 is part of Economics Class 12 preparation. The Test: Money and Banking- Assertion & Reason Type Questions- 1 questions and answers have been prepared according to the Commerce exam syllabus.The Test: Money and Banking- Assertion & Reason Type Questions- 1 MCQs are made for Commerce 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Test: Money and Banking- Assertion & Reason Type Questions- 1 below.
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Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 1

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): M1 is the least liquid measure of money supply.

Reason (R): M1 includes the currency in circulation, demand deposits with the bank and other deposits with the RBI.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 1

M1 is the most liquid measure of money supply as it includes all forms of assets that are easily exchangeable as payment for goods and services.

It includes coins and currency in circulation, demand deposits, traveler's checks, and other checkable deposits.

Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 2

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): Demand deposits are not legal tenders.

Reason (R): They are with the bank, so only can be used as a legal tender when cheques are issued for the transfer.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 2

Legal tender money is that form of money that has a legal sanction by the government behind it. Checkable demand deposits are not legal tenders because a person can legally refuse to accept payment through checkable demand deposits.

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Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 3

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): M4 is the least liquid measure of money supply.

Reason (R): M4 is inclusive of all the money supply included in M3 as well as the Total Deposits with the Post Office.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 3
  • Money supply refers to the total stock of money of all types held by the people of a country at a given point of time.
  • Money supply is measured in several ways including M1, M2, M3, and M4.
  • Each measurement has its own definition with different components, varying from most liquid to most rigid form.
  • M4 measurement of money supply is the least liquid money supply in India.
  • M4 includes all other deposits of post office savings other than national savings certificates.
  • M4 = M3 + Total deposits with post offices other than in the form of national saving certificates.
  • In which, M3 = C + DD + OD + net time deposits with the commercial banks.
  • C: Refers to currency held by the public in terms of coins and paper notes.
  • DD: Refers to the demand deposits of the people with the commercial bank.
  • OD: Includes other deposits with public financial institutions, foreign central banks, and international financial institutions.
Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 4

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): Money serves as a unit of account, providing a standard measure for valuing goods and services.

Reason (R): Money facilitates barter transactions by eliminating the need for a double coincidence of wants.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 4
  • The Assertion (A) is true because money indeed acts as a unit of account, allowing individuals to assess the value of goods and services in a standardized manner.
  • The Reason (R) is also true, as money simplifies exchanges by removing the complications of barter systems that require a double coincidence of wants.
  • However, the Reason is not the correct explanation of the Assertion because the unit of account function of money does not directly relate to the facilitation of barter transactions; rather, it is a separate function of money.
  • Therefore, the correct answer is Option B: both statements are true, but the reason does not explain the assertion.
Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 5

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): The banking system plays a critical role in money creation, which is essential for economic growth.
Reason (R): Banks can lend more than the amount they have on deposit due to the fractional reserve banking system.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 5

 

- Assertion (A) is true because the banking system indeed facilitates money creation, which enhances economic activity and growth.

- Reason (R) is also true, as banks operate under a fractional reserve system, allowing them to lend a portion of deposits while keeping some in reserve.

- The reason provided correctly explains the assertion since the ability of banks to lend more than they hold in deposits directly contributes to their role in money creation and overall economic growth.

- Therefore, both the assertion and reason are true, with the reason being the correct explanation for the assertion.

 

Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 6

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): The Statutory Liquidity Ratio (SLR) is essential for ensuring that banks maintain a certain level of liquid assets.
Reason (R): A higher SLR allows banks to lend more money to customers, thereby increasing overall credit in the economy.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 6

- The Assertion is correct. The SLR is indeed a requirement for banks to maintain a portion of their deposits in liquid assets to ensure stability and solvency.

- The Reason is false. A higher SLR actually restricts the amount of money banks can lend since it mandates that a larger portion of their deposits be held as liquid assets rather than being available for lending.

- Therefore, the Reason does not correctly explain the Assertion, making Option C the correct choice.

Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 7

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): The Reserve Bank of India plays a crucial role in controlling the money supply through various monetary policy tools.
Reason (R): The tools include changing the Cash Reserve Ratio (CRR), conducting open market operations, and adjusting the bank rate.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 7

- The Assertion is true because the Reserve Bank of India (RBI) is indeed responsible for regulating the money supply in the economy using various monetary policy tools.

- The Reason is also true as it accurately describes some of the key tools that the RBI employs to control the money supply, including changes in the CRR, open market operations, and adjustments to the bank rate.

- Furthermore, the Reason correctly explains the Assertion because these tools are essential mechanisms through which the RBI enacts its role in managing the money supply. Thus, the correct answer is Option A.

Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 8

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): The Central Bank employs Open Market Operations (OMOs) to control the liquidity in the economy.
Reason (R): OMOs involve the buying and selling of government securities to influence the money supply.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 8

- Assertion: The assertion is correct; the Central Bank uses OMOs as a primary tool to regulate liquidity in the economy.

- Reason: The reason is also correct; OMOs indeed involve transactions of government securities to either increase or decrease the money supply.

- The reason correctly explains the assertion, as the process of buying and selling securities directly influences the liquidity in the economy, validating the assertion that OMOs are used for this purpose.

Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 9

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as

Assertion (A): The speculative demand for money increases when interest rates are expected to fall in the future.
Reason (R): People prefer to hold money rather than bonds to avoid capital losses when they expect interest rates to rise.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 9

- Assertion: The assertion is correct. When people expect interest rates to fall, they anticipate that bond prices will increase, leading to capital gains. This expectation drives them to hold onto money instead of bonds, thereby increasing speculative demand for money.

- Reason: The reason is also correct. It accurately reflects the behavior of investors who opt to hold money to avoid potential losses from rising interest rates, which would lead to falling bond prices.

- Since both the assertion and reason are true, and the reason explains the assertion, Option A is the correct choice.

Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 10

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion (A): The introduction of new currency notes during demonetisation aimed to increase the formal economy's transparency.
Reason (R): Demonetisation led to a temporary cash shortage, which prompted individuals to adopt digital payment methods.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 1 - Question 10

- The Assertion is correct because the introduction of new currency notes was part of the demonetisation strategy to curb black money and increase transparency in financial transactions.

- The Reason is also correct, as the cash shortage did encourage a shift towards digital payments, which aligns with the goal of making the economy more transparent.

- Furthermore, the Reason provides a valid explanation for the Assertion, as both actions were part of the broader objective to enhance the formal economy and reduce cash dependency. Thus, both statements are true, and the Reason correctly explains the Assertion.

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