Worksheet: Money and Banking- 1 | Economics Class 12 - Commerce PDF Download

Multiple Choice Questions (MCQs)

Q2: Supply of money refers to
(a) currency held by the public
(b) currency held by Reserve Bank of India
(c) currency held by the public and demand deposits with the commercial banks
(d) currency held by Reserve Bank of India and demand deposits with commercial bank

Q3: Demand deposit include…
(a) Saving account deposits and fixed deposits
(b) Saving account deposits and current account deposits
(c) Current account deposits and fixed deposits
(d) All types of deposits

Q4: ________ is the main source of money supply in an economy.
(a) Central Bank
(b) Commercial Banks
(c) Government
(d) Both (a) and (b)

Q5: Which of the following is not included in money supply?
(a) Currency held by public
(b) Inter-bank-deposits
(c) Demand deposits in Banks
(d) Saving deposits with post office banks.

Q6: Supply of money refers to the quantity of money
(a) on 31st March
(b) during any specific period of time
(c) on any point of time
(d) during a fiscal year

Q7: Which one is included in the primary function of money?
(a) Medium of Exchange
(b) Measure of Value
(c) Both (a) and (b)
(d) None of these

Q8: Which of the following statements is correct?
(a) Supply of money refers to stock of money held by public at a point of time
(b) Supply of money is a flow variable
(c) Supply of money includes cash reserve of banks
(d) Supply of money refers to bank money

Q9: Which of the following is the supplier of money?
(a) Government and banking system
(b) Cooperative societies
(c) General public
(d) Life insurance corporation

Q10: Deposits which can be withdraw on demand by the depositors are called__________
(a) Time deposits
(b) Savings deposits
(c) Term deposits
(d) Demand deposits

Q11: The central bank can increase availability of credit by:-
(a) Raising repo rate
(b) Raising reverse repo rate
(c) Buying government securities
(d) Selling government securities

Q12: _____________ is the main function of central Bank.
(a) Notes issue
(b) Credit creation
(c) Accepting deposits front e public
(d) None of these

Q13: Which is the most liquid measure of the money supply?
(a) M4
(b) M3
(c) M2
(d) M1

Q14: Which of the following is not the function of the Central Bank?
(a) Banking facilities to government
(b) Lending to commercial banks
(c) Banking facilities to public
(d) Lending to government

Q15: When the central act as a banker to the government, what does it do?
(a) It carries out government transactions
(b) It advises on monetary and financial matters
(c) It keeps accounts of the government
(d) It carries out government transactions, advises on monetary and financial matters and keeps accounts of the government

Q16: Central Bank is an apex bank of the country that:
(a) Controls the entire banking system of the country
(b) accepts and lending of deposits to public
(c) store of value
(d) creates credit

Q17: The lender of the last resort is the function of:
(a) Rural Bank
(b) Central Bank
(c) Post office
(d) Commercial bank

Q18: Credit Control means
(a) Contraction of credit only
(b) Extension and contraction of money supply
(c) extension of credit only
(d) supply of money remains the same

Q19: Quantitative instrument of monetary policy includes:
(a) Margin Requirement
(b) Direct Action
(c) Statutory Liquidity Ratio
(d) Rationing of Credit

Q20: Identify qualitative measure of central bank:
(a) Bank rate
(b) Open market operation
(c) Margin Requirement
(d) Cash reserve ratio

Q21: What will be the effect of an increase in the ‘Repo Rate on the Money Supply?
(a) Money supply will increase
(b) Money supply will decrease
(c) Money supply will remain the same
(d) Money supply will initially increase and then it will decrease

Q22: ____________ is the rate of interest charger by the Central Bank on loans given to commercial banks.
(a) Bank rate
(b) CRR
(c) Statutory liquidity Ratio
(d) Reserve Repo Rate

Q23: Ms. Sakshi, an economics teacher, was explaining the concept of ‘minimum percentage of the total deposits to be kept by any commercial bank with the Central Bank of the country, as per norms and statute prevailing in the country’.
From the following, choose the correct alternative which specifies towards the concept explained by her?
(a) Cash Reserve Ratio
(b) Repo Rate
(c) Bank Rate
(d) Statutory Liquidity Ratio

Q24: Which of the following is not a quantitative Method of Credit Control?
(a) Open Market Operation
(b) Margin Requirements
(c) Variable Reserve Ratio
(d) Bank Rate Policy

Q25: ____________ refers to that portion of total deposits of a commercial bank which it has to keep with itself in the form of liquid assets
(a) Statutory Liquidity Ratio(SLR)
(b) Cash Reserve Ratio(CRR)
(c) Bank Rate
(d) Reserve Repo Rate

Q26: Which agency is responsible for issuing Rs.1 currency notes in India?
(a) Ministry of Finance
(b) Ministry of Home Affairs
(c) Reserve Bank of India
(d) All of the above

Q27: Who regulates money supply?
(a) Government of India
(b) Reserve Bank of India
(c) NITI Aayog
(d) Commercial Banks

Q28: Who creates credit in the economy?
(a) Government of India
(b) Reserve Bank of India
(c) NITI Aayog
(d) Commercial Banks

Q29: If the total deposits created by commercial banks is ₹. 10,000 crores and legal reserve requirements is 40% then amount of initial deposits will be
(a) ₹ 2000
(b) ₹ 2500
(c) ₹ 4000
(d) ₹ 10,000

Q30:. What will be the value of money multiplier when initial deposits are ₹ 500 crores and LRR is 10%?
(a) 0.1
(b) 0.2
(c) 10
(d) 20

Q30: The amount of initial deposits is 3000cr and LRR is 25%. Calculate the amount of total deposits created by commercial banks
(a) 10000 crore
(b) 11000 crore
(c) 12000 crore
(d) 13000 crore

Q31: Deposit creation by bank comes to an end when
(a) Fresh deposit with banks become zero
(b) LRR become zero
(c) Money multiplier become zero
(d) Total reserve equal to initial deposit

Q32: What would be the total money creation in the economy, If initial fresh deposits with banks = ₹50,000 and LRR = 20%.
(a) ₹2,50,000
(b) ₹5,00,000
(c) ₹10,00,000
(d) ₹12,00,000

Q33: Which one of the following is used for credit creation?
(a) K = 1/LRR
(b) K = 1/SLR
(c) K = 1/Bank Rate
(d) K = 1/ Repo Rate

Q34: The value of credit multiplier will be high when
(a) Cash reserve ratio is high
(b) Cash reserve ratio is low
(c) Cash reserve ratio is zero
(d) Cash reserve ratio is infinity

Q35: In a hypothetical economy, Mr. Neeraj has deposited ₹100 in the bank. If it is assumed that there is no other currency circulation in the economy, then the total money supply in the economy will be ______
a) zero
b) ₹ 100
c) not defined
d) ₹ 120

Q36: Two friends Akash and Amit were discussing about the features of central bank
.“This features saves the commercial banks from possible breakdown”
The above mentioned statement was given by Akash, identify the feature was he taking about…
(a) Banker’s bank
(b) Lender of the last resort
(c) Controller of credit
(d) Financial advisor

Q37: Read the following statements carefully and choose the correct alternatives given below:
Statement 1 – Central bank lends money to borrowers at a very low interest.
Statement 2 – Ministry of finance circulates all mint and one rupee note in India.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false

Q38: Read the following statements carefully and choose the correct alternatives given below:
Statement 1 – The value of money multiplier is determined by the reserve ratio prevailing in the monetary system.
Statement 2 – The process of credit creation directly relates to the value of reserve ratio.
Alternatives:
(a) Both the statements are true.
(b) Both the statements are false.
(c) Statement 1 is true and Statement 2 is false
(d) Statement 2 is true and Statement 1 is false

Q38: Choose the correct statement from given below
(a) Commercial banks create credit out of primary deposits.
(b) The money multiplier is directly related to the legal reserve ratio.
(c) The central bank of the country is not authorized to maintain foreign exchange reserves.
(d) All of the above

Q39: Assertion(A): Currency Held by Public is a monetary liabilities of central bank
Reason(R): Central bank control credit, whereas commercial bank create credit with currency held by Public.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q40: Assertion (A): Central Bank as a banker to the government, works as a custodian of cash reserves.
Reason(R): The Central Bank acts as a clearinghouse for the transfer and settlement of mutual claims of commercial banks.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q41: Assertion(A): Central bank as a banker to government, work as a financial advisor
Reason(R): Government borrow internally from banks and general public.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q42: Assertion(A): Demand deposits are also called bank money.
Reason(R): Demand deposits are created by commercial banks.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q43: Assertion(A): LRR represents the minimum reserve ratio essential to be maintained by banks.
Reason(R): Banks create deposits in the process of making loansto their customers.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q44: Assertion(A): The Central Bank is also known as the bank of issue.
Reason(R): The Central Bank enjoys the sole monopoly of issuing currency to ensure control over volume of currency and money supply.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q45: Assertion(A): Demand deposits are created by commercial banks.
Reason(R): Demand deposits form a significant part of the total money supply in the economy.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q46: Assertion(A): Only net demand deposits held by commercial banks are taken as part of money supply.
Reason(R): Only deposits of the public held by the banks are included in money supply
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q47: Assertion(A): Credit creation is inversely related to the Legal Reserve Ratio.
Reason(R): LRR is fixed by the market forces of demand and supply.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q48: Assertion(A): The monetary policy is the policy formulated by central bank of a country
Reason(R) : The policy measures involves measures taken by the central bank to regulate the supply of money, availability and cost of credit in the economy.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q49: Assertion(A): Banks issues currencies.
Reason(R): Commercial Bank is an institution that accepts deposits and provides loans to the public.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q50: 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.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q51: Assertion (A)- Credit creation process increases the money supply in economy.
Reason (R)- through the credit creation process commercial banks can distribute loans many times as compare to their primary deposits
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q52:Assertion (A)-settlement of liabilities of commercial banks is done by RBI. Reason (R)- RBI holds the accounts of all commercial banks and commercial banks keep funds in it essentially.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Q53: Assertion (A): Statutory liquidity ratio is the ratio of demand deposits of a commercial bank which, it has to keep with itself in the form of specified liquid assets.
Reason (R): Statutory liquidity ratio is a component of legal reserve ratio, which affects the credit creation in the economy.
(a) Both Assertion(A) and Reason(R) are true and Reason(R) is the correct explanation of the Assertion(A)
(b) Both Assertion(A) and Reason(R) are true and Reason(R) is not the correct explanation of the Assertion(A)
(c) Assertion(A) is true but Reason(R) is false
(d) Assertion(A) is false but Reason(R) is true

Case Study - 2

Q2: How does RBI promote growth process of country:-
(a) By controlling price level in country
(b) By changing various interest rates and money supply
(c) By increasing supply of products
(d) All of above

Q3: Why does RBI fix the inflation target?
(a) To make growth process fast
(b) To make coordination with government
(c) To manage exchange rate
(d) To stabilize economy

Q4: Why increasing crude oil prices are matter of concern :-
(a) Increasing crude oil prices are increasing transportation cost
(b) Increasing crude oil prices are making economy potentially unstable
(c) Increasing crude oil prices are volatising growth process
(d) Increasing crude oil prices are adversely affecting demand

Q5: What is money multiplier?

Q6: What is central bank?

Q7: Explain various functions of central bank.

Q8: Explain various tools of monetary policy to control credit in the economy.