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
- 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
The correct answers to the above question in:
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.
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Read more money and supply banking financial institutions Based Indian Economy Questions and Answers
Question : 1
Provident Fund in India is
a) Residual Savings
b) Employer’s Savings
c) Voluntary Savings
d) Contractual Savings
Answer »Answer: (d)
Question : 2
Who is the final authority in approving the design, form and material of bank notes:
a) Central Board of RBI
b) Central Government
c) Governor of RBI
d) Governor of RBI in consultation with Central Government
Answer »Answer: (b)
As per the RBI Act 1934, Section 25, "the design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board of RBI.”
Question : 3
To reduce the rate of inflation, the Government should:
a) Encourage consumer expenditure
b) Increase Income tax
c) Increase public expenditure
d) Reduce Interest Rate
Answer »Answer: (b)
To reduce the rate of inflation government should reduce the money supply which it can do through increase in income tax.
So, (c) option is true.
All the other options increases money supply.
Question : 4
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 : 5
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 : 6
The major objective of monetary policy is to
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
Answer »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.
GET Money Supply, Banking and Financial Institutions PRACTICE TEST EXERCISES
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