Economics: CUET Mock Test - 1 - Commerce MCQ

Exchange of Commodity for Commodity is known as Barter System of Exchange which was followed before the evolution of money.

Fiat money refers to the government- authorised money not backed by any equivalent assets.

In credit money, the money value is more than the commodity value.

Two individuals involved in the exchange under barter system must possess the good that each other wanted is known as double coincidence of wants.

Fiduciary money refers to the money which is backed by the trust between payer and payee and not by any government.

Increase/release of money in the economy will lead to increase in demand leading to increase in employment to deal with the above situation.

Central Bank of the country i.e., RBI functions as the advisor to the central government.

Loans offered leads to increase in the ability of commercial banks to create more currency in the economy.

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.

Not all financial institutions are banks, there are non-banking financial institutions also like LIC.

The main aim of monetary policy of the country is to bring price stability in the country.

M₁ is the most liquid form of money measure which is comprised of CC+ DD + OD

Value of money multiplier and CRR are inversely proportional

Time deposits are less liquid in nature, so they are not a part of M , measure of money supply.

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.

Money or credit multiplier = 1/LRR So, 1/0.25 = 4

Money multiplier is inversely related to the Legal Reserve Ratio which is the sum total of CRR and SLR.

Money Created
= Primary Deposits x Money Multiplier
= 1,000 x (1/0.20)
= 1,000 x 5
= ₹ 5,000

Money Multiplier = (1/LRR)
10 = 1 / LRR
LRR = 1 / 10 = 0.10 or 10 %

There is no such assumption as of not having any savings in the economy in the process credit creation.

M₃ is the benchmark currency measure used to control the money supply in the economy.

Central Bank in India just issue the currency and not prints it.

Commercial banks create currency out of the total amount deposit that they receive from the customers.

Dear money policy is the one where central bank becomes strict in supplying the currency in the economy.

Central bank of the country sets both cash reserve ratio and statutory reserve ratio.

Minimum reserve system is the one in which Central Bank get any amount of current printed against a minimum amount reserve.

SLR is the fraction of total deposit that each commercial bank must reserve with themselves in liquid assets.

Central Bank don’t directly print currency in the country, it gets it printed by the subsidies of RBI.

RBI has the sole authority of issuing the currency (regulating the money supply) in the economy.

The central bank, commercial banks and the government are the suppliers of money in an economy.