money supply, banking & financial institutions section 4 MCQ Questions & Answers Detailed Explanation
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The following question based on Money Supply, Banking and Financial Institutions topic of indian economy mcq
(a) Foreign Institutional Investors may bring more capital into our country
(b) India’s GDP growth rate increases drastically
(c) Scheduled Commercial Banks may cut their lending rates
(d) It may drastically reduce the liquidity to the banking system
The correct answers to the above question in:
Answer: (c)
When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points; the Scheduled Commercial Banks may cut their lending rates.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
If an economy is in “Liquidity Trap”, then which of the following statements shall be true:
- The interest rate in the market will be very low/zero
- People and businesses both will hold on to their cash and don’t spend
- People will be willing to spend
- Demand Deposits of banks increases
a) (ii) & (iv) only
b) (i), (ii) & (iv) only
c) (i) only
d) (i) & (iv) only
Answer »Answer: (b)
A liquidity trap is a situation where the Central Bank wants to increase the money supply in the economy in case of recession but fails to lower the interest rate as the interest rates (repo rate and bank deposit rates) almost reaches zero. This makes the monetary policy ineffective.
In such a situation people would like to hold on to their cash (maybe in savings deposits in banks that is also called cash and not the fixed deposit) and may not spend money as there is almost zero or negative inflation.
(Actually, people are not willing to spend and demand in the economy declines, that is why the economy enters into a liquidity trap).
So, (i), (ii) & (iv) statements are true.
Question : 2
What does venture capital mean?
a) A short-term capital provided to industries
b) Funds provided to industries at times of incurring losses
c) A long-term start-up capital provided to new entrepreneurs
d) Funds provided for replacement and renovation of industries
Answer »Answer: (c)
Venture capital (VC) is a long term financial capital provided to early-stage, high-potential, start up companies or new companies.
Question : 3
An outward shift in the demand for money, other things being equal should lead to:
a) A lower interest rate but the same quantity of money
b) A higher quantity of money but lower interest rates
c) A higher interest rate but the same quantity of money
d) A higher quantity of money but the same interest rate
Answer »Answer: (c)
An outward shift in the demand for money, other things being equal should lead to a higher interest rate but the same quantity of money. The supply will not increase but with more demand the price (the interest rate) should increase.
Question : 4
When the exchange rate changes from 1 $ = 60 to 1 $ = 58, it means
- Rupee value has appreciated
- Dollar value has depreciated
- Rupee value has depreciated
- Dollar value has appreciated
a) 2 and 3 are correct
b) 2 and 4 are correct
c) 1 and 4 are correct
d) 1 and 2 are correct
Answer »Answer: (d)
Question : 5
Consider the following statements:
- not all banks come under the regulation of the Right to Information Act
- not all banks come under Schedule 2 of RBI
a) Only 2 is correct
b) Only 1 is correct
c) Both 1 and 2 are correct
d) Neither 1 nor 2 is correct
Answer »Answer: (c)
Question : 6
What are the measures of checking deflation?
- Increasing money supply
- Promote credit creation by the banks.
- Curtailment in taxes so as to increase the purchasing power of the people.
a) 2 only
b) 1 only
c) 3 only
d) 1, 2, 3
Answer »Answer: (d)
Measures of checking deflation are:
- Increasing money supply.
- Promoting credit creation by the banks.
- Curtailment in taxes so as to increase the purchasing power of the people.
- Increasing the public expenditure and the employment opportunities in the economy.
- Increasing the money supply in circulation by repayment of old public debts.
- Providing economic subsidy by the Government to the industrial sector of the econ.
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