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Commerce Exam  >  Commerce Tests  >  Economics Class 12  >  Test: Money and Banking- Assertion & Reason Type Questions- 3 - Commerce MCQ

Test: Money and Banking- Assertion & Reason Type Questions- 3 - Commerce MCQ


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14 Questions MCQ Test Economics Class 12 - Test: Money and Banking- Assertion & Reason Type Questions- 3

Test: Money and Banking- Assertion & Reason Type Questions- 3 for Commerce 2024 is part of Economics Class 12 preparation. The Test: Money and Banking- Assertion & Reason Type Questions- 3 questions and answers have been prepared according to the Commerce exam syllabus.The Test: Money and Banking- Assertion & Reason Type Questions- 3 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- 3 below.
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Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 1
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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 modern currency is used as a medium of exchange; however, it does not have a use of its own.

Reason (R): Modem currency is easy to carry

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 1
Both assertion and reason are true, but reason is not the correct explanation of assertion. The modern currency is used as a medium of exchange because it is accepted and authorized as a medium of exchange by a country’s government.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 2
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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 Multiplier refers to the process of creation of credit by the commercial Bank.

Reason (R): Money creation by commercial bank raises the National Income

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 2
The money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money. That is, in a fractional-reserve banking system, the total amount of loans that commercial banks are allowed to extend (the commercial bank money that they can legally create) is a multiple of reserves; this multiple is the reciprocal of the reserve ratio.
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Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 3
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Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion: To curb inflation , the RBI should sell the Government securities.

Reason: When RBI will sell Government securities to the people and commercial banks then money will flow to RBI which reduces the lending capacity of commercial banks.

Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 3
To control the inflationary trend, the Central Bank should sale government securities and raise the bank rate. Both of the measures given above result in reduction in the purchasing power of people.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 4
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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): An increase in CRR results in decrease in the value of Multiplier.

Reason (R): Banks lend money many times more than their cash reserves.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 4
Cash Reserves Ratio (CRR) refers to the proportion of total deposits of the commercial banks which they must keep as reserves with the central bank in the form of cash. By increasing the cash reserve ratio, the commercial banks has to maintain more cash with the central bank which reduces their credit creation capacity and therefore money supply in the economy also reduces. Therefore, increase in cash reserve ratio(CRR) reduces the money supply in the economy.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 5
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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 monetary policy is a policy formulated by the central bank.

Reason (R): The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 5
Monetary policy refers to the policy of the central bank with regard to the use of monetary instruments under its control to achieve the goals specified in the Act. The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 6
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Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion: Central bank uses many tools such as Bank rate, repo rate, reverse repo rate etc. to control money supply in the economy.

Reason: Commercial bank is the apex Bank of India.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 6
Reverse Repo rate is the short term borrowing rate at which RBI borrows money from banks. The central bank uses this tool to change the money supply in the economy. An increase in the reverse repo rate means that the banks will get a higher rate of interest from RBI.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 7
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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): Size of multiplier is given by the inverse of LRR

Reason(R): There is direct relationship between LRR and value of money multiplier
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 7
The deposit multiplier is sometimes expressed as the deposit multiplier ratio, which is the inverse of the required reserve ratio. For example, if the required reserve ratio is 20%, the deposit multiplier ratio is 80%.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 8
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Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion: The Central Bank as a Supervisor regulates and controls the commercial banks. The control is exercised by periodic inspection of banks and the returns filed by them.

Reason: The RBI has fined Induslnd Bank Rs.4.5 crore for non-compliance of certain norms like Exposure norms, Prudential Norms on Income Recognition etc., among others. RBI has clarified that the deficiencies were in regulatory compliance and not in customer bank transactions. — The Financial Express, 18 October 2020.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 8
The central bank supervises regulates and controls the commercial banks. The regulation of these banks may be related to their licensing branch expansion liquidity of assets management merging of banks etc. The control is exercised by periodic inspection of banks and the returns filed by them.iv Controller of Money Supply- The central bank of the country tries to control the availability of credit in the market with its many tools like CRR SLR bank rate open market operation etc which are also called the instruments of Monetary policy. Central bank regulates the money supply and credit in the best interest of the country.v Lender of Last Resort- It helps the commercial banks in times of financial difficulties. Scheduled banks can take the loans by re discounting first class bills or short term approved securities whenever they do not get funds from any other sources.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 9
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Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion- To reduce the volume of credit, bank rate should be reduced.

Reason- A rise in bank rate implies that the cost of money would go up.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 9

A bank rate is the interest rate at which a nation's central bank lends money to domestic banks, often in the form of very short-term loans. Managing the bank rate is a method by which central banks affect economic activity. Lower bank rates can help to expand the economy by lowering the cost of funds for borrowers, and higher bank rates help to reign in the economy when inflation is higher than desired.

Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 10
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Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion - Central Bank is the ‘Lender of last Resort’.

Reason - It is ready to lend to banks, when bank faced severe crises. If central bank refuses, there is no option for the banks but to shut down.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 10
Central banks act as the lender of last resort. Central banks have traditionally held this role because they are primarily the ones responsible for ensuring that financial markets function smoothly and the financial system is stable. In this way they help protect people and businesses from the difficulties that can arise when banks are in trouble.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 11
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Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

Assertion: The Reserve bank of India had in march 2020,offered a three month moratorium on loans enabling borrowers to defer repayments on EMI and other loans.

Reason: The loan moratorium was aimed at providing borrowers relief aimed the economic impact of the covid-19 pandemic.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 11
RBI in a press conference dated March 27, 2020 announced that all banks, housing finance companies (HFCs) and NBFCs have been permitted to allow a moratorium of 3 months on repayment of term loans outstanding on March 1, 2020.

Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.

Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 12
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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 issues currency on the basis of CRR.

Reason ( R ) The CRR impacts credit creation capacity of the commercial bank.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 12
Money or Credit Creation by Commercial Banks Commercial banks increases the flow of money in an economy by credit creation. This process of credit creation is an outcome of its two primary functions, i.e. acceptance of loans and advancement of deposits. The banks issue loans from their cash reserves with the confidence on their historical experience that all depositors will not withdraw their funds at the same time. In this way, commercial banks create credit many more times than their cash reserves and contributes to increase money supply in the economy. It depends on initial level of deposits and money multiplier.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 13
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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): Supply of money is a stock variable

Reason (R): Supply of money is measured over a period of time, usually a fiscal year
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 13
Money supply refers to the total sum of money available to the public in the economy at a point of time. Because money supply is measured at a particular point of time,it is a stock variable.
Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 14
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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 ) : in order to maintain the faith of depositors in the banking system, it is sufficient for the commercial banks to keep only a small part of deposits as cash Reserves.

Reason ( R ) : A change in Reserve requirement affects the power of commercial bank to create the credit.
Detailed Solution for Test: Money and Banking- Assertion & Reason Type Questions- 3 - Question 14
Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, and are at liberty to make loans to borrowers of the balance.Bank reserves are held as cash in the bank or as balances in the bank's account at the central bank. The country's central bank determines the minimum amount that banks must hold in liquid assets, called the "reserve requirement" or "reserve ratio". Most commercial banks hold more than this minimum amount as excess reserves.
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