money supply, banking & financial institutions section 6 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) Promote economic growth with price stability
(b) weed out corruption in the economy
(c) increase government’s tax revenue
(d) revamp the Public Distribution System
The correct answers to the above question in:
Answer: (a)
The main objective of monetary policy is to control the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general economic growth.
Further goals of a monetary policy are usually to contribute to lower unemployment and to maintain predictable exchange rates with other currencies.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
What are the authorities of SEBI?
- Oversee the working of stock exchanges
- Regulate merchant banks and mutual funds
- Register and regulate intermediaries such as stock brokers
a) 2 only
b) 1 only
c) 3 only
d) None of the Above
Answer »Answer: (d)
The SEBI is authorised to:
- Oversee the working of stock exchanges;
- Regulate merchant banks and mutual funds;
- Register and regulate intermediaries such as stockbrokers;
- Curb fraudulent and unfair trade practices including insider trading;
- Promote the development of a healthy capital market.
Question : 2
Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government?
a) Debt Service Obligation
b) Statutory Liquidity Ratio
c) Liquidity Adjustment Facility
d) Cash Credit Ratio
Answer »Answer: (b)
Question : 3
The Real Rate of Interest is equal to the Nominal Interest Rate minus inflation. Consider the following statements:
- Real Interest Rate must be positive to encourage savings and reduce consumption
- Real Interest Rate must be negative to encourage savings and reduce consumption
- Real interest rate is always positive
- Inflation rate in the market may be negative
a) (iii) only
b) (i) & (iii) only
c) (i) only
d) (i) & (iv) only
Answer »Answer: (d)
Nominal Interest Rate (Deposit Rate) = Inflation + Real Interest Rate
If inflation is 5% and banks offer a deposit rate of 5% then nobody will deposit money in banks as whatever banks are offering will be eaten away by inflation. People deposit money in banks to earn something and this is possible only when the real interest rate is positive.
So, if inflation is 5% and banks are offering a deposit rate of 7% then the real interest rate will be 2%.
This means the depositors are actually/really getting a 2% return.
When the real interest rate is positive then it leads to people saving (depositing) money in banks, and somewhat reduction in their consumption.
When inflation increases a lot and banks do not increase their deposit rate then the real interest rate may turn negative. Inflation in the economy may be negative.
So, (i) & (iv) statements are true.
Question : 4
In the context of the Indian economy, which of the following is/are the purpose/purposes of ‘Statutory Reserve Requirements’?
- To enable the Central Bank to control the number of advances the banks can create
- To make the people’s deposits with banks safe and liquid
- To prevent the commercial banks from making excessive profits
- To force the banks to have sufficient vault cash to meet their day-to-day requirements
a) 1 and 2 only
b) 1 only
c) 2 and 3 only
d) 1, 2, 3 and 4
Answer »Answer: (a)
Because Reserve requirements are designed as “precautionary measures” and not to stop banks from “excessive” profit.
Question : 5
The _________ bank linkage programme continued to be the main micro-finance model by which the formal banking system reaches micro-entrepreneurs (including farmers).
- Self-Help Group
- Indian bank
- SBI
- PNB
a) 2 only
b) 1 only
c) 3 only
d) 4 only
Answer »Answer: (b)
The Self-Help Group (SHG) bank linkage programme continued to be the main micro-finance model by which the formal banking system reaches micro-entrepreneurs (including farmers).
Question : 6
Priority Sector lending by banks in India constitutes the lending to
a) Micro and small enterprises
b) All of the above
c) Weaker sections
d) Agriculture
Answer »Answer: (b)
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