What is the primary function of money in an economy?

To facilitate exchanges by acting as a medium of exchange.

Fill in the blank: Money serves as a unit of ___ for valuing goods and services.

Account

True or False: The demand for money decreases when interest rates rise.

True. People prefer to earn interest rather than hold onto cash.

List two key roles of the central bank in the economy.

Issuing currency and controlling the money supply.

What does the Cash Reserve Ratio (CRR) determine?

The percentage of deposits that banks must hold as reserves.

Riddle: I am a form of money without intrinsic value, accepted due to government guarantee. What am I?

Fiat money.

Explain the term 'money multiplier.'

It refers to the mechanism through which banks create credit based on the reserve ratio and initial deposits.

Fill in the blank: The total demand for money consists of transaction demand and ___ demand.

Speculative

True or False: Digital transactions have made financial inclusion less achievable.

False. Digital transactions have made financial inclusion more achievable.

What happens to bond prices when market interest rates rise?

Bond prices fall because their present value decreases.

What is the role of commercial banks in the money creation process?

They accept deposits and lend out a portion of these funds, creating new deposits.

Fill in the blank: The speculative demand for money increases when people expect interest rates to ___ in the future.

Rise

Riddle: I am the liquid asset that can be exchanged for goods and services, but I lose value if held too long. What am I?

Money.

What is the effect of demonetisation on tax compliance?

It increases tax compliance by bringing unaccounted wealth into the formal banking system.

Explain how banks manage the balance between lending and available funds.

Banks lend out a portion of deposits while keeping enough reserves to ensure they can repay depositors on demand.

Fill in the blank: M1 is considered the most ___ form of money.

Liquid

What is the main purpose of the Reserve Bank of India's open market operations?

To regulate the money supply by buying and selling government securities.

True or False: A liquidity trap occurs when interest rates are high, leading to increased demand for money.

False. A liquidity trap occurs when interest rates are very low, causing everyone to hold money instead of bonds.

What are the two types of money supply defined by the Reserve Bank of India?

Narrow money and broad money.

What did the Indian government aim to combat through demonetisation in 2016?

Corruption, black money, terrorism, and fake currency.