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Banking Sector: Money & Banking- 1


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20 Questions MCQ Test Indian Economy for UPSC CSE | Banking Sector: Money & Banking- 1

Banking Sector: Money & Banking- 1 for UPSC 2022 is part of Indian Economy for UPSC CSE preparation. The Banking Sector: Money & Banking- 1 questions and answers have been prepared according to the UPSC exam syllabus.The Banking Sector: Money & Banking- 1 MCQs are made for UPSC 2022 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests for Banking Sector: Money & Banking- 1 below.
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Banking Sector: Money & Banking- 1 - Question 1

Who issues metallic coins in India?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 1

The Government of India issues metallic coins in India. Coins, paper currency and deposits are the components of money supply in India.

Banking Sector: Money & Banking- 1 - Question 2

Which of the following is issued by RBI?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 2

Currency notes are issued by RBI. The Government of India issues metallic coins in India.

Banking Sector: Money & Banking- 1 - Question 3

Consider the following statements:

1. Money supply is a flow variable and is measured for a certain period.

2. Interbank deposits, which one commercial bank deposits in another bank, are not included in the money supply.

3. M1 and M2 are called broad money and re-least liquid of all.

Which of the above statements is/are correct?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 3

Money supply, like money demand, is a stock variable. Hence, statement 1 is incorrect.

  • The total stock of money in circulation among the public at a particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply, viz. M1, M2, M3, and M4. 
  • The interbank deposits, which a commercial bank holds in other commercial banks, are not to be regarded as part of the money supply. Hence, statement 2 is correct.
  • M1 and M2 are known as narrow money. M3 and M4 are known as broad money. Hence, statement 3 is incorrect.
    • These gradations are in decreasing order of liquidity. M1 is the most liquid and easiest for transactions whereas M4 is the least liquid of all. M3 is the most commonly used measure of the money supply. 

Additional Information

  • The measures of money supply in India are classified into four categories M1, M2, M3, and M4 along with M0.
  • This classification was introduced in April 1977 by the Reserve Bank of India.
  • Reserve Money (M0): It is also known as High-Powered Money, monetary base, base money etc.
    • M0 = Currency in Circulation + Bankers’ Deposits with RBI + Other deposits with RBI.
  • It is the monetary base of the economy.
    • Narrow Money (M1):
      • M1 = Currency with public + Demand deposits with the Banking system (current account, saving account) + Other deposits with RBI
      • M2 = M1 + Savings deposits of post office savings banks
      • Broad Money (M3)
      • M3 = M1 + Time deposits with the banking system
      • M4 = M3 + All deposits with post office savings banks 
Banking Sector: Money & Banking- 1 - Question 4

Which of the following about money supply measure adopted in 1977 is correct?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 4

These are the measures of money supply adopted by RBI in 1977.

Banking Sector: Money & Banking- 1 - Question 5

Which of the following is most liquid measure of money supply in India?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 5

M1= cash with the public+ demand deposits with banks+ other deposits with RBI.

Banking Sector: Money & Banking- 1 - Question 6

 Which of the following is known as broad money?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 6

M3 is known as broad money as more items are included in this measure when compared to M1 which is known as narrow money.

Banking Sector: Money & Banking- 1 - Question 7

Which of the following about money supply measures adopted in 1998 is wrong?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 7

M4= M3+ all deposits with post office savings banks excluding National Savings Certificate.

Banking Sector: Money & Banking- 1 - Question 8

Consider the following statements and identify the right ones.
i. Data on Mo are published on monthly basis
ii. Data on M1 and M3 are available on weekly basis

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 8

Data on Mo are published by the RBI on weekly basis and Data on M1 and M3 are available on fortnightly basis.

Banking Sector: Money & Banking- 1 - Question 9

Consider the following statements and identify the right ones.
i. Data on liquidity aggregates L1 and L2 are published weekly
ii. Data on L3 are published once in a quarter.

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 9

Data on liquidity aggregates L1 and L2 are published on a monthly basis.

Banking Sector: Money & Banking- 1 - Question 10

Which of the following banks was not nationalized in 1969?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 10

Vijaya Bank was nationalized in 1980 with 5 other banks. In 1969, 14 banks were nationalized.

Banking Sector: Money & Banking- 1 - Question 11

Which of the following banks were nationalized in 1980?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 11

The other 3 banks are Punjab and Sind Bank, New bank of India and Oriental Bank of Commerce.

Banking Sector: Money & Banking- 1 - Question 12

Consider the following statements and identify the right ones.
i. Post nationalization, banks were supposed to open more branches in rural and semi-urban areas
ii. Banks had to provide credit facilities to areas that come under priority sector.

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 12

Post nationalization, banks were supposed to open more branches in rural and semi-urban areas in order to collect savings from these areas.

Banking Sector: Money & Banking- 1 - Question 13

Consider the following statements and identify the right ones.
i. The lead bank scheme owes its origin to Nariman Committee
ii. Under this scheme, SBI and its subsidiaries only were given the responsibility of development of districts

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 13

Under this scheme, SBI and its subsidiaries, 14 nationalised banks as well as 3 private banks were given the responsibility of development of districts.

Banking Sector: Money & Banking- 1 - Question 14

Regional Rural Banks work at

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 14

The SBI and its subsidiaries, 14 nationalised banks as well as 3 private banks were given the responsibility of development of districts.

Banking Sector: Money & Banking- 1 - Question 15

Which of the following is a subsidiary of SBI?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 15

SBI has 5 subsidiaries now. The other 2 are State Bank of Bikaner and Jaipur and State Bank of Travancore.

Banking Sector: Money & Banking- 1 - Question 16

In 2001, RBI issued a set of guidelines for private sector. Which of the following is true?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 16

The paid up capital should be increased to 300 crore rupees in 3 years of operation.

Banking Sector: Money & Banking- 1 - Question 17

In 2001, RBI issued a set of guidelines for private sector. Which of the following is true?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 17

New banks are supposed to keep minimum 10% of CAR from the beginning.

Banking Sector: Money & Banking- 1 - Question 18

In 2001, RBI issued a set of guidelines for private sector. Accordingly which bank was issued licence?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 18

In 2001, RBI issued a set of guidelines for private sector. Accordingly only 2 banks were given licence then- YES Bank and Kotak Mahindra Bank.

Banking Sector: Money & Banking- 1 - Question 19

Which of the following is a reason for inflation?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 19

Inflation refers to rise in the general price level in the economy. Various demand and supply side factors cause inflation.

Banking Sector: Money & Banking- 1 - Question 20

Which of the following is an effect of inflation?

Detailed Solution for Banking Sector: Money & Banking- 1 - Question 20

As a result of inflation, some sections like producers or big landlords gain due to the ownership of assets, income inequality increases.

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