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A farmer exchanges wheat for cloth.
This system of exchange is referred to as ________
Exchange of Commodity for Commodity is known as Barter System of Exchange which was followed before the evolution of money.
______ money refers to the m oney backed by the authority of the government.
Fiat money refers to the government- authorised money not backed by any equivalent assets.
In credit money, the money value is less than the commodity value.
In credit money, the money value is more than the commodity value.
‘A’ has a good that ‘B’ wants and ‘B’ has a good that A’ wants. This is referred to as ______ under barter system of exchange.
Two individuals involved in the exchange under barter system must possess the good that each other wanted is known as double coincidence of wants.
Cheques are examples of _________ money.
Fiduciary money refers to the money which is backed by the trust between payer and payee and not by any government.
In the present COVID 19 times, many economists have raised their concerns that Indian economy may have to face a deflationary situation, due to reduced economic activities in the country. Suppose you are a member of the high-powered committee constituted by the Reserve Bank of India (RBI).
You have suggested that as the supervisor of commercial banks, ...............of the money supply be ensured, by the Reserve Bank of India (RBI).
Increase/release of money in the economy will lead to increase in demand leading to increase in employment to deal with the above situation.
_______ is the agent and adviser to the Government of India.
Central Bank of the country i.e., RBI functions as the advisor to the central government.
Loans offered by commercial banks .......... the m oney supply in the economy.
Loans offered leads to increase in the ability of commercial banks to create more currency in the economy.
Supply of m oney refers to ________
Money supply at a given point of time is equal to the sum total of currency held by public and demand deposits with commercial banks.
All financial institutions are banking institutions.
Not all financial institutions are banks, there are non-banking financial institutions also like LIC.
The main aim of monetary policy is ______
The main aim of monetary policy of the country is to bring price stability in the country.
M1 = Currency will Public + ______ + Other Deposits with RBI
M1 is the most liquid form of money measure which is comprised of CC+ DD + OD
Value of Money Multiplier ______ with an increase in Cash Reserve Ratio.
Value of money multiplier and CRR are inversely proportional
Which of the following is not a part of M1?
Time deposits are less liquid in nature, so they are not a part of M , measure of money supply.
Choose the incorrect pair from given below.
Choose from the options given below.
Central bank uses different measures of money supply which are arranged based upon the liquidity. M1 is the most liquid among all, so known as Narrow Money and M3 is less liquid and the monetary base.
If LRR is equal to 25%, what will be the value of credit multiplier?
Money or credit multiplier = 1/LRR So, 1/0.25 = 4
Money multiplier is equal to
Money multiplier is inversely related to the Legal Reserve Ratio which is the sum total of CRR and SLR.
What will be the total amount of money created in the system if legal reserves ratio is 20% and primary deposits are ₹ 1,000?
= Primary Deposits x Money Multiplier
= 1,000 x (1/0.20)
= 1,000 x 5
= ₹ 5,000
At a given point in time, money multiplier is equal to 10. What will be the value of legal reserve ratio?
Money Multiplier = (1/LRR)
10 = 1 / LRR
LRR = 1 / 10 = 0.10 or 10 %
Which of the following is / are not an assumption(s) of credit creation process?
(i) Entire banking system is taken as a single unit.
(ii) All transactions are done through banks.
(iii) There is no saving in the economy.
There is no such assumption as of not having any savings in the economy in the process credit creation.
Which of following measures of money supply is considered as monetary base?
M3 is the benchmark currency measure used to control the money supply in the economy.
Identify the incorrect statement from given below.
Central Bank in India just issue the currency and not prints it.
Choose the correct statement from given below.
Commercial banks create currency out of the total amount deposit that they receive from the customers.
Dear money policy of central bank, which is used to keep the growth steady and in-line with other economic factors, refers to
Dear money policy is the one where central bank becomes strict in supplying the currency in the economy.
India legal reserve ratio is set by the commercial banks.
Central bank of the country sets both cash reserve ratio and statutory reserve ratio.
Which of the following systems is followed by Reserve Bank of India for issuing currency?
Minimum reserve system is the one in which Central Bank get any amount of current printed against a minimum amount reserve.
Which of the following reserves is kept with the commercial banks?
SLR is the fraction of total deposit that each commercial bank must reserve with themselves in liquid assets.
Central Bank prints currency in the country.
Central Bank don’t directly print currency in the country, it gets it printed by the subsidies of RBI.
Who regulates money supply?
RBI has the sole authority of issuing the currency (regulating the money supply) in the economy.
The Central Bank is the sole supplier of money in an economy.
The central bank, commercial banks and the government are the suppliers of money in an economy.
Non-Chequable deposits are those
Time or Term deposits are for a fixed period of time, thus money cannot be withdrawn using mode like cheque.
What is meant by cash reserve ratio?
CRR is the amount of total reserve that each commercial bank must reserve with the central bank.
_______ refers to money backed by the order or authority of the government.
Legal tender money and fiat money are one or the same thing and backed by the government authority.
Credit Cards are issued by ________.
Credit cards are a kind of loans and advances given by the commercial banks to its customers.
The rate at which commercial banks park their excess reserves is known as
It is the rate of interest that commercial banks receive on their deposits kept with central bank.
Which of the following is the short-term borrowing rate of commercial bank?
Repo rate is the rate at which commercial bank can from central bank for a period of 1-14 days.
The volume and direction of money supply in the economy is controlled by ________
Central Bank of the country is solely responsible to change the volume and direction of trade with its various tools i.e., qualitative and quantitative.
Assertion (A): The currency notes do not carry as much value in it as is denominated, still has general acceptance.
Reason (R): Currency notes are backed by a legal promise from the central bank and central government of the country.
Paper Currency in general don’t have any market value, it is the legal promise and trust in the banking system that makes these paper currencies accept as a medium of exchange.
Assertion (A): We can still encounter barter system in modern economic system.
Reason (R): People exchange old clothes for utensils.Alternatives
Barter System has not really extinct as few of its forms are still visible in modern times as stated.
Directions: Read the following case study and answer the question
The Central Bank of India i.e. Reserve Bank of India, is the apex institution that control the entire financial market. Its one of the major functions is to maintain the reserve of foreign exchange. Also, it intervenes in the foreign exchange market to stabilise the excessive fluctuations in the foreign exchange rate.
In other words, it is the central bank’s job to control a country’s economy through monetary policy; if the economy is moving slowly or going backward, there are steps that central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all involve injecting more cash into the economy. The simple supply and demand economic projection occur and currency will devalue.
When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices. Whatever the central bank does or infact don’t do, will affect the currency of that country. Sometimes, it is within the central bank’s interest to purposefully effect the value of a currency. For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country’s commodities will seek cheaper supply; hence directly effecting the economy.
Which of the following is known as the creator currency in the country?
Commercial Bank in the country creates currency through the process of money creation thus it is known as creator of currency in the country.